Market optimism is building into Intel Corp.'s (INTC) earnings release after the close on Thursday.
Shares of the Santa Clara, California-based semiconductor company was up about 2% after Thursday's opening bell as signals are suggesting chipmakers finally may have found a bottom after better-than-expected reports and management commentary from Texas Instruments Inc. (TXN) , Lam Research Corp. (LRCX) and Xilinx Inc. (XLNX) .
Analysts highlighted the idea that the bottom may be building after the more dovish reports.
"Lam Research reported 2Q19 (December) earnings results ahead of expectations and, more importantly, provided a near-term outlook that allayed some of the worst-case scenario fears," Stifel analyst Patrick Ho wrote. "While the outlook came in below what we believe a bottom in WFE may be in 2019, we also believe this was a conservative take by management and at this point, likely leaves more opportunity for upside than downside going forward."
Texas Instruments executives had even more positive takes on the relationship between supply and demand in the memory market after some tenuous quarters.
"While macro uncertainty adds risk, we see Texas Instruments and the industry under-shipping end demand for the first time since (the first half of 2016): historically a bullish tactical indicator - and secular drivers still very much intact," Credit Suisse analyst John Pitzer said.
The commentary helps build share value back after a spate of bad news from Apple Inc. (AAPL) , Taiwan Semiconductor Manufacturing Co. (TSM) and Qualcomm Corp. (QCOM) left chip stocks in a rut on forecast fears. The rebound in chip makers bodes well for Intel should it report positively or even provide a similarly optimistic outlook.
Great Expectations
As Intel reports its fourth-quarter results at 5 p.m. ET amid a brightening backdrop, analysts polled by FactSet expect revenue of $19.02 billion (up 12% annually) and non-GAAP earnings per share of $1.22.
For the all-important 2019 forecast, expectations are for revenue of $73.19 billion (up 3%) and EPS of $4.53.
The good news for those betting on earnings from the world's largest semiconductor company is that the company consistently has beaten analyst estimates on its earnings, though that has not always had positive implications for its stock.
The company's fortunes will likely fall to its forecast.
Intel has pre-empted some of this effect by making major announcements at the Consumer Technology Association's CES show earlier this month. It announced its new 9th-generation lineup and noted that PC CPUs based on its long-delayed 10-nanometer (10nm) processors will be available by year-end.
The company also highlighted the strides it is making on self-driving car and artificial intelligence chips, which is bolstered by major partners including Facebook Inc. (FB) .
Competition Comes in Focus
Intel will be betting on the expansion of these businesses, including self-driving cars, cloud computing, the Internet of Things, artificial intelligence, and the overall horizontal integration of technology into even non-technological industries. All these growth stories will be big factors in the company's forward guidance that could make or break a stock move.
The data points coming from Asian server makers and U.S. hard drive and memory suppliers suggest cloud giants for now are slowing their IT hardware spending as they work to digest the equipment they bought in recent quarters. In addition, Apple's comments on smartphone demand -- a key application for semiconductors, including Intel's -- did little to build a bull case.
Some analysts are cautious.
"We expect in-line results, with minor downside risk, and we see increasing risk of disappointing guidance as most data points have gotten incrementally worse since last earnings period," Keybanc analyst Weston Twigg warned.
Competition, namely from Advanced Micro Devices Inc. (AMD) and Nvidia Corp. (NVDA) , has eroded Intel's pre-eminence in the sector as they've built out their own efforts to capitalize on key markets.
That trend is further shown by AMD's planned mid-2019 launch of second-generation Epyc server CPUs that are likely to be quite competitive and could lead Intel to be cautious with its 2019 outlook for its Data Center Group. This type of competition as much of the industry awaits newer, fresher chips could add to a myriad of macro pressures that include the trade war, government shutdown and slowing overall demand that are dampening forecasts across the board.
"We sense the most negative bias heading into earnings for Intel," BMO Capital Markets analyst Ambrish Srivastava wrote. "The reasons are wide-ranging, but of late are related to the growth rate of Intel's DCG business."
The consensus estimate for the unit growth is a drop to 14% in the fourth quarter, with revenue coming in at $6.35 billion. And for the whole of 2019, the Data Center Group is only expected to grow 6%.
Capital expenditures are also expected to decline, in line with broader industry trends amid supply-and-demand disconnects.
