Market Overview

Intel Earnings Preview: Weak Fourth Quarter Expected

Intel Earnings Preview: Weak Fourth Quarter Expected

Intel (NASDAQ: INTC), which has faced slumping sales as the PC market weakens, is scheduled to report its fourth-quarter and full-year results Thursday, January 17, after the markets close. Investors will be looking for the semiconductor giant to provide any direction on the year ahead and an update on the search for a new chief executive.


Analysts on average predict that Intel will report revenue for the quarter that slipped more than two percent year-over-year to $13.53 billion. Per-share earnings are expected to come to $0.45, which would be more than 29 percent lower than in the same quarter of last year. That consensus earnings estimate is the same as it was 30 days ago. But note that analysts have underestimated earnings per share (EPS) in the past ten quarters. The third-quarter EPS of $0.58 beat the consensus estimate by about 16 percent.

Intel attributed its slumping third-quarter results to the "continuing tough economic environment" as the "world of computing is in the midst of a period of breakthrough innovation and creativity." The company lowered its sales guidance for the fourth quarter, despite the impending launch of Windows 8, and warned of weakening gross margins. The share price dropped almost five percent in the days following the third-quarter report.

The analysts' consensus full-year forecast calls for $2.10 per share earnings on revenue of $53.43 billion. That would be down from $2.39 per share and $54.00 billion in the previous year. That consensus EPS estimate has ticked down in the past 60 days from $2.11.

The Company

Intel is still the world's largest semiconductor chip maker. The company markets its products primarily to original equipment manufacturers, original design manufacturers, and industrial and communications equipment manufacturers in the computing and communications industries. This Dow Jones Industrial Average component was founded in 1968 and is headquartered in Santa Clara, California. Paul Otellini has been the president and chief executive since 2005.

Competitors include Advanced Micro Devices (NYSE: AMD) and Texas Instruments (NASDAQ: TXN). Both companies are scheduled to report their four-quarter results next week. Analysts predict they will say that revenues sank more than 12 percent from a year ago. Texas Instruments' EPS are expected to have declined about 29 percent while AMD is expected to post a net loss.

During the three months that ended in December, Intel set a deal to work with Comcast (NASDAQ: CMCSA) and other cable operators to develop and deploy new set-top boxes, announced that the CEO will retire in May and announced a senior note offering, in part, so it can repurchase shares of its common stock.


Intel's long-term EPS growth forecast is about nine percent, and the price-to-earnings (P/E) ratio is less than the industry average. The operating margin is greater than the industry average, and the return on equity is about 25 percent, while the return on investment is more than 19 percent. The number of shares sold short, as of the end of December, represents more than four percent of the float. The days to cover was about six, the highest in a year.

Of the 10 analysts surveyed by Thomson/First Call who follow the stock, seven recommend buying shares and none recommends selling. The current share price has overrun the mean price target, or where analysts expect the stock to go. But the high price target still represents more than nine percent potential upside. Other individual price targets could come up if Intel manages to surprise with some good news in its report.

The share price has risen about 13 percent since hitting a 52-week low in November. However, shares are still trading more than 12 percent lower than a year ago. The share price is above the 50-day moving average. Over the past six months, the stock has outperformed AMD but underperformed Texas Instruments and the DJIA.


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