Intel Boosts Revenue Forecast as Business Demand Picks Up

Intel Corp. (INTC)’s stock soared to its highest level in more than a decade, fueled by an improved sales forecast as companies start spending more to upgrade their aging computer systems.

The stock today jumped 6.8 percent to close at $29.87, the highest level since February 2004, after the world’s largest semiconductor maker raised its second-quarter revenue projection yesterday after the markets closed. Intel also said annual sales will increase for the first time since 2011, buoyed by improving business demand for personal computers.

The higher forecast provides another hint of optimism in the PC industry, where Intel gets most of its revenue, after two straight years of declining global shipments. Even as consumers shun PCs in favor of mobile devices, demand for Intel’s microprocessors is getting a lift as companies replace aging computer systems, said Ian Ing, an analyst at MKM Partners.

“In the short to medium term, it looks like the market has stabilized, and business and corporate PCs are driving a lot of strength,” said Ing, who has the equivalent of a hold rating on Intel stock. “It’s really a nice positive for them, even without needing the consumer to come back yet.”

Sales this quarter will be $13.7 billion, plus or minus $300 million, compared with an earlier projection of about $13 billion, plus or minus $500 million, Intel said yesterday in a statement. The Santa Clara, California-based company also said it now projects some growth in sales for the year, compared with a previous forecast for revenue to be little changed.

Intel shares are up 15 this year, more than the 4.8 percent increase in the Standard & Poor’s 500 Index.

Higher Profitability

Gross margin, or the percentage of sales left after deducting production costs, will be about 64 percent in the current period. That’s 1 percentage point higher than the company’s prior prediction. Intel cited higher PC unit volume for the increase in profitability. The company said it will report second-quarter earnings and update margin projections for 2014 on July 15.

Analysts on average had estimated Intel’s sales would rise 2 percent this quarter to $13 billion, from $12.8 billion a year earlier, according to data compiled by Bloomberg. Revenue for 2014 on average was predicted to be $53.1 billion. Intel’s last annual sales growth was the 24 percent gain it posted in 2011, when revenue was $54 billion.

PC Declines

Earlier this month, market-research firm IDC estimated worldwide PC shipments will decline 6 percent this year, and said the drop may persist through at least 2018 as consumers increasingly opt for Internet-ready smartphones and tablets instead of desktops and laptops. The researcher also said one bright spot for 2014 has been corporate demand, driven by replacements of computers using Microsoft Corp.’s Windows XP, an operating system that the software maker no longer supports.

To cope with the erosion of PC demand, Chief Executive Officer Brian Krzanich has made Intel’s mobile-chip business a priority, though the company has yet to make much headway. In April, Intel disclosed that first-quarter losses exceeded revenue in its mobile division. Sales in the unit fell 61 percent.

Intel’s chips power more than 80 percent of the world’s PCs, so for now the company remains dependent on that market. To keep revenue growing beyond this year, Intel will have to win business in handheld devices or woo more consumers back to PCs, said Cody Acree, an analyst at Ascendiant Capital Markets LLC.

“It’s nice incremental positive, but it’s largely around the expiration of XP,” said Acree, who recommends selling Intel shares. “It’s just a temporary upgrade cycle.”

New thinner and lighter laptops running the company’s processors, some of which are almost as powerful as desktop machines, may attract consumers frustrated with the limitations of tablets and the lack of improvements in mobile-device capabilities, said Suji De Silva, an analyst at Topeka Capital Markets Inc.

“They have very good products and good momentum,” he said. “The new form factors will be a longer-term help.”

Source:Bloomberg