Intel Keeps the Bears at Bay

Worries about Intel’s (NASDAQ:INTC) future appear to be premature, for now.
The world’s largest chipmaker said after the closing bell Thursday that its fourth-quarter profit jumped 48%, easily beating what Wall Street had expected.

And next quarter appears safe too: Intel guided first-quarter revenue and gross margins above analysts’ expectations.

The report continued the upward momentum in the chipmaker’s shares, which have been rising this week after shares had fallen about 6% in the past month — underperforming both the semiconductor sector as a whole, as well as the broader market.

In after-hours trading, the stock tacked on another 1.7% to $21.71.

Perhaps even more importantly, the news suggests that the transition assumed to be underway from personal computers to tablets and other mobile computing options is far from complete, and that Intel can maybe continue to succeed while trying to lodge a foothold in the mobile-device chip space.
Specifically, Intel said net income for the quarter ended Dec. 31 rose to $3.4 billion, to 59 cents a share, from $2.3 billion, or 40 cents a share, a year earlier. Revenue climbed 8% to $11.5 billion.
Wall Street analysts, on average, had been expecting the company to post earnings of 53 cents a share on revenue of $11.4 billion.

Intel also said gross margins came in at 67%, while average selling prices for the company’s microprocessors was up slightly from the third quarter.

The company continues to be bullish on margins, saying they would be 64%, plus or minus a couple percentage points, in the first quarter, slightly above Street forecasts.

But with the crowd-pleasing press release that offered up to Wall Street the top- and bottom-line upside surprise came the figures that investors are most concerned about: namely, the appearance that growth is slowing in the company’s PC client business, which is 70% of Intel’s revenue.

That division grew 14% year-over-year three months ago; on Thursday, Intel said fourth-quarter PC client revenue rose only 3.5%. Those numbers dovetail a little too conveniently with research firm Gartner’s announcement on Wednesday that it was lowering its fourth-quarter PC growth forecast to 3.1% from 4.8%.

For investors who have seen this stock trade between $18 and $24 for nearly 18 months, and may see it climb to $22 on Friday off this earnings report, it may be time to wonder how much upside is left while Intel seeks a better growth model.

Disclosure I am long INTC shares.