Are There Any Catalysts Ahead for Intel Corporation (INTC)?

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Intel Corporation (NASDAQ:INTC)’s unending woes in the PC business should be enough reason to stay clear of the stock until the dust settles on first quarter earnings. The stock has remained range bound in the recent past over growing concerns of a lack of sufficient catalysts to propel the stock higher.

Weakness in the PC business has all but forced the chip giant to pursue new opportunities for growth in higher-growth businesses. The sale of server chips and car chips seems to be offering Intel Corporation (NASDAQ:INTC) a lifeline as PC sales continue to tank.

However, there is growing concern the company may trim its full-year guidance as uncertainty continues to grip the PC market.

PC Weakness

Global PC shipments continue to tank, and if recent research findings are anything to go by, the decline could be in the high single- to low double-digits this year. Intel Corporation (NASDAQ:INTC) remains heavily reliant on its PC business and given the weakness in the segment, the company’s earnings could fall short of estimates. Even though the US PC market continues to show signs of a recovery sales were still down by 6.6% in the first quarter representing a three-year low.

The problems that the PC market is facing appear to be structural and permanent. Given that most of the PCs in the market are blazing fast means they will remain useful to consumers for much longer thus negatively affecting the upgrade cycle. A slow upgrade cycle is one that goes a long way to affect Intel’s core business as it reduces the amount of orders it receives for its chips.

Wary of the concerns, a number of Investors have continued to cut their revenue and earnings estimate for Intel. The Street expects the company to post revenues of $13.86 billion well below its guidance midpoint.

Growth in Data Center is disappointing

The sale of chips for data centers is the only thing that can uplift Intel Corporation (NASDAQ:INTC) out of the current mess. Generated sales in the unit will have to grow robustly if the tech giant is to have any chance of offsetting weakness in other segments.

Last year the data center group turned in an operating profit of $7.8 billion compared to $8.2 billion generated by the Client Computing unit that includes chips for PC. The sale of server chips is slowly eclipsing the PC business as a core business for Intel. The company now needs to maintain the momentum given that PC sales are not expected to bounce anytime soon.

The Impact of the Altera acquisition should become clear once the company posts its quarterly earnings. Intel Corporation (NASDAQ:INTC) has already changed its financial reporting structure as it looks to provide more details on its core businesses.

Intel expects half of its revenue to come from Altera this year. Up until now, the stock has been trading in the $28 to $32 a share range. If there is, anything that can push the stock higher in the market, then it is the newly acquired company.

Costly Executive Turnover

A recent wave executive departure is one that continues to evoke mixed reactions on the Street. More business heads have left this year than any other year. The departures could be an indication that Intel is in restructuring round given the silence it has accorded the massive changes. However, aggressive restructuring could hurt the company’s bottom line on increased expenses.

Bottom line

How successful Intel Corporation (NASDAQ:INTC) will be in offsetting PC weakness will be key to its meeting its full-year earnings guidance. Further weakness in this segment and failure of the Data Center Group to grow robustly could force it to trim its outlook. The stock on the other hand will only trade higher on other core businesses doing extremely well to offset PC weakness.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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