Intel must show cloud growth to feed restructuring

Intel Corp. will need to show growth in its non-PC businesses when the company reports fiscal second-quarter earnings after the market’s close on Wednesday.

The chip maker announced a restructuring in April that would enable it to focus on its transition to the cloud. Intel said it would focus on high-growth areas, such as data centers and Internet of Things, while distancing itself from the weak PC market. Global PC shipments fell 4.5% year-over-year last quarter, according to industry tracker IDC, but Nomura analyst Romit Shah said the PC market looks healthier now than it has in two years.

One thing that might be a boon for Intel’s mobile business heading forward is a potential deal with Apple Inc. AAPL, +0.04%   to supply chips for the iPhone 7, according to analysts.

Sell-side analysts surveyed by FactSet expect Intel report a profit of 52 cents a share, compared with 55 cents in the year-earlier period. Contributors to Estimize, a software platform that uses crowdsourcing from hedge fund executives, brokerages and buy-side analysts to predict earnings, expect Intel to report earnings of 55 cents a share. The company has a long history of beating both the Estimize and FactSet consensus estimates, having topped the FactSet number in each of the last six quarters, and beating Estimize in five of the last six.

The company is expected to report revenue of $13.5 billion, compared with $13.7 billion in the year-earlier period, according to both the FactSet and Estimize numbers. Intel fell short of both the FactSet and Estimize sales consensus last quarter, but beat them in the three quarters prior.

Shares of Intel have risen 11% in the past three months, outperforming the S&P 500, which is up 3.1%. They’ve also outperformed on the year, rising 19% versus 1.9% for the index. The average rating on the stock is the equivalent to buy, while the median 12-month price target on the stock among a poll of roughly 40 analysts is $35.93. This week, Canaccord Genuity analyst Matthew Ramsay raised his price target on the stock to $40 from $38, while MKM Partners’ analyst Ian Ing raised his by a dollar to $39.

Analysts will be on the lookout for whether Intel continued to grow its cloud-based business, which are the focus of its new restructuring plan. Last quarter, data center revenue rose 9% year-over-year, while Internet of Things revenue grew 22%.

In April, Intel said the data center and IoT businesses have become the company’s primary growth engines. Last year, the businesses made $2.2 billion in revenue, which Intel said “largely offset” the decline in the PC market segment. The company has invested in a number of forward-thinking businesses recently, including striking a deal with BMW and Mobileye to build driverless cars.

The company’s client computing group, which includes the PC and mobile business, comprised 55% of revenue last quarter, but its growth has been slowing. But a deal to supply modems to the iPhone 7 might help reverse some of that deceleration, according to analysts.

”Intel is regaining its “Mojo” with stabilizing client PCs and successful proof points toward diversification,” said Ing. “We think Intel is attractive here.”

Source: Market Watch