Intel Q4 – A later tide.

The tide is not going to turn on PCs until Q3 14.

• Intel reported Q4 results that met expectations but cautious commentary on the enterprise outlook and weak guidance dampened enthusiasm for a recovery in the PC sector this year.
• Q4 revenues / EPS were $13.8bn / $0.51 compared to forecasts of $13.7bn and $0.52.
• Q1 guidance was for revenues of $12.3bn-$13.3bn right in line with consensus at $12.8bn.
• However implied EPS missed forecasts by a meaningful margin as OPEX will be higher than anticipated giving EPS of around $0.37.
• This compares unfavourably to consensus at $0.42.
• This miss was compounded by commentary surrounding weakness in the Enterprise segment.
• This was generally expected to be strong in Q4 due to budget flush as well as the need to migrate off Windows XP where Microsoft is ending support this year.
• This was plenty to pop the fledging balloon of hope that finally the PC market is seeing signs of recovery.
• The shares were down around 5% in after-hours trading.
• Intel’s full year 2014 guidance is also cautious and it is in line with other commentators in expecting the overall PC market to decline slightly in 2014.
• Consensus has revenues / EPS of $52.6bn / $1.90 for the full year and Intel has guided to $52.7bn (flat) with implied EPS of $1.82.
• Revenues are in line but the market was hoping for better profitability with EPS expected at $1.90.
• Intel’s forecasts are looking for a decline in the PC Client group of mid-single digits which I think could end up being too cautious.
• On the one hand Intel boasts of 70 hybrid PC designs in the stores by Q3 and signs of stabilisation in the PC market but then forecasts a decline in 2014.
• This basically tells me that Intel doesn’t really know what to expect and is simply hedging its bets.
• This is not an enormous surprise as Windows 8 has been a spectacular disappointment to date.
• However, I think the time is right for the PC market recover as the hardware of hybrid devices is reaching the point where compromises no longer have to be made (see here).
• Hence, I think that hybrid devices should drive the PC market to grow slightly in 2014.
• This would make the forecast for the PC client group too low and it is there that the scope for surprise remains.
• The market was hoping for recovery but the time when this will begin to materialise is when the real devices are available.
• Hence, I am looking for Q3 to be when the tide begins to turn.
• This report is likely to drive some softness in Microsoft which I would wait for before picking it up.
• Microsoft, Yahoo! and Intel remain three of my top picks for this year.