Intel to Break Down Earnings: Expect Breakout Numbers

Intel Corp. (INTC) will release its fourth-quarter earnings in a new format on Thursday, clearly showing how it restructured itself to remain competitive during the challenging economic environment of the recession. The new structure, which breaks out the company's performance in key market segments, also sends a message to Wall Street, showing how the world's leading chipmaker's business model has been successful and has positioned it for profitability in upcoming quarters.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% By announcing it will provide such a transparent view into its operations, Intel is signaling investors that it will report earnings above Wall Street expectations – a welcome development as the market has struggled at the start of earnings season, largely due to Alcoa's (AA) less than stellar earnings report, and profit warnings from Chevron (CVX) and Electronic Arts (ERTS) earlier this week.

"If Intel's report is positive, it will certainly brighten the investment tone," says Quincy Krosby, chief market strategist at Prudential. "If it is less than positive, investors will go into next week more cautious."

Thomson Reuters projects Intel will report earnings per share of 30 cents, up from 4 cents per share a year earlier. That far outpaces its closest rival, Advanced Micro Devices (AMD), which is expected to report a loss of 18 cents per share, an improvement over its loss of 69 cents per share a year ago. Thomas Weisel Partners now projects Intel will post earnings of 32 cents per share.

The Source of the Netbook Phenomenon

All the signs are in place for Intel to have a positive report. The company has successfully increased its market share in the consumer segment, while maintaining its dominance with businesses by developing faster, more powerful servers. Consumers propelled the PC market in the fourth quarter, boosted by holiday notebook and netbook purchases, lean inventories and stronger than anticipated demand.

"Their Atom chip has really generated this whole netbook phenomenon," notes Morningstar (MORN) equity analyst Andy Ng. "And their new server chips have encouraged firms to upgrade their servers although enterprise spending for PCs has actually been depressed."

Analysts also note that Intel has made strides into the fast-growing mobile device market. "They are moving off of the PC platform to more mobile devices, and they've been able to do that and grow their market share in the non-PC market," says Kim Caughey, vice president of Fort Pitt Capital Group.

Caughey said Intel has just begun to expand in the area of mobile devices, but with an agreement to partner with Nokia on mobile devices and a new mobile phone with LG already in the works, its future in that area is bright. Caughey also said that by announcing revenue numbers for its PC Client Group, Data Center Group, Ultra-Mobility Group, Digital Home Group and others individually, "They want to show they are winning their categories."

Investors can also expect the company to crow about delivering long-term value to investors. As the industry leader, Intel may reap additional benefits from the continued adoption of Windows 7, and an anticipated uptick in corporate spending when companies begin to replace aging fleets of PCs.

"We believe the world is in the very early stage of a corporate spending cycle which will include an upgrade to more energy efficient, higher performance servers and PCs," a recent report from Thomas Weisel Partners said. "We expect this trend will result in Intel's March quarter performance to be slightly better than the 7% to 9% decline seasonality would suggest."
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