Intel's Earnings Report Will Tell Us a Lot About Its Future
For chipmaker Intel (INTC) - Get Report , second-quarter earnings may serve as a chance to prove that it's still in the driver's seat in the fast-changing semiconductor world.
Santa Clara, Calif.-based Intel reports earnings on Wednesday after the market close. On average, Wall Street is expecting $13.54 billion in revenue and 53 cents in earnings per share.
Shares are up about 1.2% Wednesday afternoon to $35.56.
For the chip giant that has delivered just mediocre performance this year -- its stock is up just about 3% year-to-date compared to an 11% rise in the chip industry barometer SOX Index -- Q2 numbers will serve as a proof point for whether Intel is indeed inching closer to finding new sources of growth and gaining a foothold in the new end-markets it's trying to tap.
Intel appears well-positioned to deliver positives as the market anticipates strong numbers from PC and data center businesses, analysts say.
Favorable PC shipment sentiment and expected modem ramps for Apple (AAPL) - Get Report should bode well for Intel, wrote Jefferies analyst Mark Lipacis in a Wednesday note. Lipacis suggested that the stock's under-performance has been due to concerns about the recent deceleration of its data center business, as well as uncertainty about the reorganization announced last quarter that involves a 12,000-person headcount reduction and CFO transition.
"Recent data points from Asia suggest Q2 PCs came in slightly better than expected, and [Seagate's] upside surprise suggests that [Data Center Group] could be better as well," he further wrote, referring to data storage product provider Seagate Technology (STX) - Get Report , which recently announced positive pre-quarterly earnings.
In addition to improving PC and data center businesses, Intel is starting to show progress in diversifying its business via 3D NAND products and autonomous driving partnerships, said MKM Partners analyst Ian Ing.
"I want Intel to split," said Jim Cramer, founder of TheStreet and portfolio manager of the Action Alerts PLUS portfolio.
Intel could break into fast-growing and slower-growing units, Cramer said, adding that the semi could give CFO Stacy Smith the slower-growing business with strong cash flow.
"Two companies are better than one," he said.
The PC end market may be seeing a slight uptick as a result of Microsoft (MSFT) - Get Report ending its free upgrade of Windows earlier this year, said Stifel analyst Kevin Cassidy.
"Corporations might have to go buy new PCs," Cassidy added, noting that the growth of cloud computing bodes well for Intel's data center group.
At the same time, Intel has been trying to find ways to drive growth outside its core PC market. Its peer Qualcomm (QCOM) - Get Report , which also reports Wednesday after the market close, also has been working to diversify outside of its core handset market.
While Qualcomm has a dominant marketshare in the handset market, the sector is only growing at about 5% annually, Cassidy explained, adding that the management of both companies may also face growth questions.
Meanwhile, SoftBank Group on Monday offered $32 billion to acquire chip designer ARM Holdings (ARMH) in a big bet on the Internet of Things. Despite speculation that Intel or Qualcomm would step in to purchase the U.K.-based company, some industry follower said such a tie-up would experience serious regulatory pushback and that it actually spells positive news for chipmakers with exposure to IoT, such as Intel, Qualcomm and Cypress Semiconductor (CY) - Get Report .
The broader semi market is watching the PC market, as well as the Brexit effect, MKM Partner's Ing said.
Smartphone build activity will likely remain normal during this earnings season, but there are some concerns that the new graphic processing unit (GPU) products from Nvidia (NVDA) - Get Report and Advanced Micro Devices (AMD) - Get Report are not as widely available as their older products.