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Why Intel Earnings Matter (Update 1)

Updated from 8:10 a.m. to include additional analysis in the twelfth paragraph.

NEW YORK (TheStreet) -- Intel (INTC - Get Report) is set to report fourth-quarter earnings after Thursday's closing bell, and all eyes will be on CEO Brian Krzanich's PC business, which is still the chip giant's bread and butter.

Research firm Gartner noted 82.6 million PC units were shipped in the fourth quarter, a bit better than expected, and may show that the PC market, while still exceptionally weak, is starting to bottom out. This could last a couple of quarters, as Windows XP becomes obsolete forcing companies to upgrade their computers.

Intel shares were lower on Thursday, falling 0.8% to trade at $26.44.

RBC Capital Markets analyst Doug Freedman noted that while there might be some improvement in the PC business this quarter, it might be "a short term phenomena," as enterprise IT spend picked u, largely due to XP becoming obsolete. "We believe that revenues could be at mid-pt and potentially better given the modest pick-up in Q4 PC demand and on-going data center strength," Freedman wrote in a note. He rates shares "sector perform" with a $26 price target.

Analysts surveyed by Thomson Reuters expect Intel to earn 52 cents a share on $13.71 billion in revenue for the fourth quarter.

Wedbush Securities Betsy Van Hees analyst said she believes sentiment is positive surrounding the stock, but expectations are fairly low. "While we remain very impressed with management's new initiatives, we believe for INTC to outperform the market from here that we will need to seemeaningful revenue contributions from these new initiatives and DCG to outpace declines in PCCG returning INTC back to strong Y/Y earnings and revenue growth," Van Hees wrote in a note.

Van Hees rates Intel shares "neutral" with a $27 price target.

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