Intel's Earnings Beat: What Wall Street's Saying

NEW YORK (TheStreet) - Intel (INTC) beat Wall Street's first-quarter earnings estimate on Tuesday, lifted by growth in its data center business and signs of improvement in the PC market.

Analysts focused plenty of attention on Intel's gross margin in a flurry of notes released on Wednesday morning. The company's gross margin came in at 59.7%, down from 62% in the prior quarter, but up from 56.2% in the same period last year. Intel also delivered second-quarter gross margin guidance between 61% and 65% and raised its full-year guidance by 1 percentage point to 61%, plus or minus a few percentage points.

Jefferies raised its Intel price target to $35 from $32 on Wednesday, citing the chip giant's gross margin strength.

Shares of Intel rose 0.97% to $27.03 in early trading.

Intel's server business continues to perform well - revenue from its Data Center Group was $3.1 billion during the first quarter, a year-over-year hike of 11%. The company's PC Client Group was $7.9 billion, down 1% compared to the same period last year, although CEO Brian Krzanich pointed noted that unit volumes were up year-over-year for the second consecutive quarter. "Even as challenges remain in the consumer client segment, we saw continued improvement in enterprise clients, driven by increasing form factor innovation and refresh," he said, during Intel's earnings conference call.

Revenue from Intel's Mobile and Communications Group, however, was $156 million, down 61% year-over-year.

Excluding items, Intel earned 38 cents a share on net income of $1.9 billion, down from 40 cents a share and net income of $2 billion in the same period last year. Analysts surveyed by Thomson Reuters were looking for earnings of 37 cents a share.

The semiconductor giant reported revenue of $12.8 billion, up from $12.58 billion in the prior year's quarter, but below analysts' estimate of $12.81 billion.

Analyst sentiment towards Intel was generally positive following the company's results. Here's what a few of them had to say:

Jefferies analyst Mark Lipacis (Buy, $35 Price Target)

"The (consensus) bear view is that INTC gross margins and revenues must decline as it moves down market into tablets and low-end notebooks. That view ignores Moore Stress - in INTC's case, its ability to stay on the transistor cost curve while its competitors stall translates to better gross margin and share gain. In 1Q14, GM increased by 350bps and revenues increased by 1.5% YoY. We are $0.22 and $0.47 above consensus for '14 and '15. INTC remains our top pick."

Credit Suisse analyst J.Pitzer (Outperform, $30 Price Target)

"To date, stock performance has been as much about the Bears losing steam as the Bulls gaining momentum - structurally improving manufacturing efficiencies has continued to allow INTC to outperform a lackluster PC market, posting GM upside yet again even as inventory levels declined to C3Q09 lows. PC revenue guide was 'good enough' but not 'too good' as to give Bears 'an issue,' and PC mix (ASP down 1% q/q) continues to refute a structural ASP collapse but hardly characterizes PC demand overly dependent on Corporate/WinXP EOL."

J.P. Morgan analyst Christopher Danely (Overweight)

"Stabilizing PC demand and higher gross margins drive above-consensus EPS and guidance. Reit OW.Yesterday after the close, Intel reported above-Consensus 1Q14 EPS and raised 2014 gross margin guidance driven by lower than expected costs. We are maintaining our above-Consensus EPS estimates and remain Overweight INTC as the reasons we upgraded the stock remain intact: upside to Consensus estimates driven by stability in the PC market and improved guidance and spending."

Oppenheimer analyst Rick Schafer (Perform)

"INTC reported 1Q sales/EPS of $12.8B/$0.38, in line with consensus $12.8B/$0.37. Better than seasonal performance in DCG was offset by a sharp decline in MCG (-52% Q/Q, 61% Y/Y) during the quarter. Guidance for 2Q indicates revenue of $13B (+2% Q/Q), in line with historical seasonality and the Street's $13B. GM was guided up ~300bps Q/Q to 63% thanks to lower 14nm start-up costs and higher volumes. With shares up 14% since February lows, we expect share price reaction to be relatively muted on Wednesday morning. Net, we opt to remain on the sidelines until a clearer picture of INTC's wireless traction/profitability and longer-term growth outlook emerges."

MKM Partners analyst Ian Ing (Neutral, $27 Price Target)

"Intel delivered a $0.01 EPS beat and solid raise largely via gross margins. We are coming away from the call likely more positive than most investors, and maintain our Neutral rating with a positive bias. While concerns likely center on struggling Mobile & Communications, highlighted by segment re-classification, we think the company's ability to gain and retain high-profile leadership smartphone wins (putting it in the center of the 4G jump ball) is underestimated."

--Written by James Rogers in New York.

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