Intel Earnings Appear Good Enough, Despite the Era of No Growth

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Intel Corp. (NASDAQ: INTC) is out with its first quarter earnings report. The top company for processors and semiconductors, and a Dow Jones Industrial Average component, reported earnings of $0.38 per share and revenue of $12.8 billion. These compare to $0.40 per share and $12.58 billion in revenue a year ago.

Thomson Reuters was calling for estimates of $0.37 in earnings per share and $12.81 billion in revenue. Another item worth noting is that the whisper number was $0.37, according to WhisperNumber.com – which also said that Intel has a 59% positive surprise history.

Intel generated approximately $3.5 billion in cash from operations, paid dividends of $1.1 billion, and used $545 million to repurchase 22 million shares of stock. Intel’s gross margin was represented as 59.7% in the first quarter, down 2.3 points from the 62% in the fourth quarter of 2013.

For the coming quarter, Intel sees revenue at $13.0 billion, plus or minus $500 million. Thomson Reuters is at $12.96 billion. Gross margin is also put at 63%, plus or minus a couple of points.

Intel further said that capital spending would be $11 billion in 2014, plus or minus $500 million. 2014 revenue is also still expected to be flat – same as the prior guidance. Guidance is also put at 61% gross margin for the year, plus or minus a few points. Keep in mind that Intel showed a breakdown of its individual businesses for the first time this earnings season. It showed the following data:

  • PC Client Group revenue of $7.9 billion, down 8 percent sequentially and down 1 percent year-over-year.
  • Data Center Group revenue of $3.1 billion, down 5 percent sequentially and up 11 percent year-over-year.
  • Internet of Things Group revenue of $482 million, down 10 percent sequentially and up 32 percent year-over-year.
  • Mobile and Communications Group revenue of $156 million, down 52 percent sequentially and down 61 percent year-over-year.
  • Software and services operating segments revenue of $553 million, down 6 percent sequentially and up 6 percent year-over-year.

What this translates to is that Intel is not yet making any inroads at all in mobile and communications. That means that it is missing the growth markets, while the PC markets remain weak. CEO Brian Krzanich said,

“In the first quarter we saw solid growth in the data center, signs of improvement in the PC business, and we shipped 5 million tablet processors, making strong progress on our goal of 40 million tablets for 2014. Additionally, we demonstrated our further commitment to grow in the enterprise with a strategic technology and business collaboration with Cloudera, we introduced our second-generation LTE platform with CAT6 and other advanced features, and we shipped our first Quark products for the Internet of Things.”

When you just look at the numbers on the surface, nothing looks great here – nothing outside of Data Center sales and Internet of Things sales. On the other hand, the reaction to the news is one of relief. Intel shares rose by 0.8% to $26.77 on Tuesday, and the after-hours reaction had shares up initially about 2% at $27.40 – if that holds, then it will mark a 52-week high.

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