Intel Earnings Preview: What Wall Street Is Saying

Updated from 9:59 a.m. to include thoughts from RBC analyst.

NEW YORK (TheStreet) -- Intel (INTC) reports first-quarter earnings after the bell on Tuesday and eyes will be on CEO Brian Krzanich and whether the company's famously high gross margins can remain lofty in the face of an increasingly mobile world.

Intel, the world's largest semiconductor company, has struggled as the world becomes increasingly reliant on mobile devices, many of them using intellectual property from ARM Holdings (ARMH). Companies such as Qualcomm (QCOM), Broadcom (BRCM) and others license ARM's IP, and then build chipsets based off a variety of instructions and needs for smartphone and tablet manufacturers.

Santa Clara, Calif.-based Intel is starting to get into this business, continuing to grow its foundry business, a unit at which it makes chips for other companies, albeit at lower gross margins than Intel is accustomed to seeing. There has been plenty of speculation Intel will try to win (and potentially get) Apple's (AAPL) chipset business, but that remains to be seen for now.

Though Intel has been late to the mobile game, Krzanich, who replaced former CEO Paul Otellini last year, is working hard to make sure Intel doesn't miss the next big trend in computing. Intel recently acquired BASIS Science for a reported $100 million, as smartwatches and the Internet of Things (IoT) trend continues to play out.

"No smartwatch device solves anything for people in any good way," Intel's general manager of new devices, Mike Bell, said in a March 26 interview. "Over time, in the next couple of years, we're going to see more use cases. The capabilities in the BASIS product will make it better, but I do think that biometrics are important on a going forward basis for watches or whatever."

Bell noted that the BASIS team, which will report directly to him, has "incredible experience building health and wellness products," something that's very important for the wearables space right now. "The BASIS guys have done something useful -- take data and make recommendations or set goals. I believe as we try to turn hype into reality, health and fitness is the reality."

For the first quarter, analysts will be looking whether to see the smaller decline in the PC business has helped Intel, which still generates a large portion of its revenue from its PC Group. Analysts surveyed by Thomson Reuters are expecting Intel to earn 37 cents a share on $12.8 billion in revenue for the first quarter. Analysts surveyed by Estimize are looking for Intel to earn 39 cents a share on $12.86 billion in sales.

Shares of Intel were lower in Tuesday trading, falling 0.6% to $26.40, ahead of the earnings report.

Going into the report, analysts were by and large positive. Here's what a few of them had to say.

MKM Partners analyst Ian Ing ($26 PT, Neutral)

"For INTC, we continue to like its progress outside of client PCs (62% last Q sales), as server demand for cloud data centers remains unabated, 4G LTE is more a 2015 story with potential share gains on SoFIA integration, and foundry can demonstrate required customer service as 14nm ramps."

"INTC's core competency is manufacturing excellence more than product or end-market excellence, and we note its more agnostic approach on how to fill its fabs. As more difficult
process shrinks lie ahead (14nm FinFET, 10nm), we believe INTC could pull away from foundry competition as its process advantages become more apparent (through continued engineering improvements). The company's greater challenge is to demonstrate the high level of customer service and input that fabless companies expect from suppliers like TSMC."

Wells Fargo analyst David Wong (Outperform, $29 - $34 PT range)

"We think Intel's March sales results and June guidance could be above expectations. We are estimating March 2014 revenue of $13.0 billion, above consensus revenue of $12.8 billion. For the full-year 2014 we are estimating sales of $55.3 billion and EPS of $2.00, above the consensus sales number of $53.1 billion and EPS of $1.86. Three new server processor launches in the March quarter, and recent data suggesting to us that PC demand may be stable to improving build our confidence in our above-consensus estimates. As 2014 progresses, we think that growing tablet processor share and rising gross margins may be additional positive catalysts for Intel's stock. We are reiterating our Outperform rating on Intel, Intel remains our Top Pick."

Pacific Crest Securities analyst Michael McConnell (Outperform, $31 PT)

"While notebook ODM unit shipments fell 18% in Q1, we believe stronger-than-expected commercial demand, particularly for desktop PCs, are likely to serve as an offset. This is supported by Gartner's PC sell-through data (Q1 PC units fell 7% q/q). Thus, we believe Q1 results to be in line with consensus estimates for 7% q/q sales decline ($12.8 billion), gross margin of 59%, and EPS of $0.37."

RBC Capital Markets analyst Doug Freedman (Sector Perform, $26 PT)

"Maintain SP Rating and $26 PT. INTC could upside MarQ EPS (GMs or OpEx) and offer slightly above seasonal guidance for JunQ (+0.8%). However, normalized annual EPS of ~$2.00 should not deviate as ROI remains challenged given mobile spending and increasing depreciation. GMs should compress in 1H15 reflecting start-up costs and mix, deleveraging the model."

-- Written by Chris Ciaccia in New York

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