Intel will announce its first-quarter earnings on Tuesday after the close of the stock market, with results expected to be in line with what the company and analysts have been predicting. After the roller-coaster ride of 2009, a little predictability is probably a good thing.
Intel (NASDAQ: INTC) is expected to report first-quarter net income of $0.38 a share on sales of approximately $9.82 billion, according to a consensus survey by FactSet Research. That would be a 9 percent sequential decline over the fourth quarter of 2009 -- hardly reason to complain as Intel's fourth quarter is always its best and its first quarter is one of its weakest.
Moreover, it's a 37 percent improvement over the $7.145 billion Intel reported in Q1 of 2009, which was coming off the worst economic collapse in decades.
If anything is going to affect Intel's numbers, it's likely the Chinese New Year, which occurred on Feb. 14 and is a public holiday that runs for seven days on the mainland. FBR Capital Markets analyst Craig Berger said in a research note that some PC ODMs pushed component orders and/or device builds into the second quarter largely due to Chinese labor shortages during the holiday.
FBR expects Intel to come in slightly above its revenue guidance range of $9.3 billion to $10.1 billion. It expects notebook builds to fall by 10 percent sequentially and desktop builds to drop 13 percent sequentially, with the amount of builds pushed out to the second quarter being an unknown quantity.
However, Intel will get a little extra income and margin bump from better-than-expected sales of the new Xeon 5600 processors, which are higher-margin parts, as well as the new 32nm Westmere laptop processors. "Specifically, we think its revenues tracked in the upper half of 1Q guidance, though not at the high end of guidance, and that 1Q gross margins likely tracked in the 61-62 percent range, an investor positive," Berger wrote.
A 61 to 62 percent margin would be almost equal to the 64.7 percent margin from Q4 2009 and well above the 45.6 percent margin of Q1 2009. This would mean GAAP EPS of $0.39, one cent above the industry consensus.
Intel faces some challenges heading into the current second quarter as well. There is component tightness (but not shortages) for hard disk drives, Blu-ray optical disk drives, and DDR2/DDR3 memory chips, and AMD is showing signs of life with its new laptop chips, the Lenovo deal that got AMD into the Chinese market, and new desktop CPU shipments.
Still, Berger projects Intel's revenues will track seasonally lower by 2 to 4 percent sequentially in Q2, as is historical, for a revenue range of $9.2 billion to $10.0 billion, a possible gross margin of 61.5 percent, give or take a few points, and GAAP EPS of $0.38, ahead of the Street estimate of $0.36.
Intel will also have to address some non-silicon issues on the call as well, such as the condition of Sean Maloney, executive vice president and co-general manager of the Intel Architecture Group (IAG), who suffered a stroke in March. Maloney was widely tipped to be the successor to CEO Paul Otellini when he retires, which he must do in five years according to company policy.
The other issue is whether Intel will have to report any "material adverse impact" from the recently passed health care reform legislation. A number of large companies have already announced the impact, with AT&T taking a $1 billion charge.