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Can Intel Deliver Better-Than-Expected Earnings in 2018?

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Mar. 9 2018, Updated 4:55 p.m. ET

Intel’s efforts in 2018

Intel (INTC) has grown significantly over the past 50 years with the advent of PC (personal computer) boom. However, its growth has slowed over the past few years, as the PC market declined and it lost the mobile processor market to Qualcomm (QCOM).

Intel is now moving fast to grab a meaningful share in the fast-growing markets of AI (artificial intelligence), IoT (Internet of things), 5G, and autonomous vehicles.

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In 2017, Intel launched AI chipsets such as NNP (Nervana Neural Network), Movidius VPU (vision processing unit) and Xeon scalable processors. It also hired Advanced Micro Devices’ (AMD) GPU (graphics processing unit) head, Raja Koduri, to develop in-house GPU for various applications and compete with NVIDIA (NVDA) and AMD in the discrete GPU market.

Intel has also acquired Israel-based Mobileye to get a head start in autonomous driving technology. Moreover, the company is looking to tap the Chinese AI market, the second-largest AI market after the United States. All these efforts should reflect in Intel’s fiscal 2018 earnings and increase the share of the data-centric business to nearly 50% of its overall revenues.

Revenue guidance: fiscal 2018

For fiscal 2018, Intel expects to increase its revenues by 3.6% YoY (year-over-year) to $65 billion at the midpoint. If we look at the company’s history, it has always given poor full-year guidance. Its guidance has generally been conservative, as in 2014 and 2017, or over-optimistic, as in 2015.

However, its 3.6% YoY revenue growth looks achievable in 2018 as the data center market picks up the pace. Although Intel faces strong competition from AMD in the PC market, it doesn’t appear to be something that bothers the chip giant because its focus is now on 5G and AI technology.

AMD, on the other hand, expects to see double-digit revenue growth in 2018, as it looks to gain market share from Intel and NVIDIA in the CPU (central processing unit) and GPU markets.

However, it’s difficult to predict (with any accuracy) full-year revenue growth in a dynamic sector like the semiconductor. NVIDIA does not give full-year guidance because it’s still exploring the potential of its GPU technology in AI, which makes it difficult to quantify earnings potential.

1Q18

For this reason, we have to look at Intel’s quarterly guidance. Fiscal 1Q is a seasonally weak quarter for Intel as holiday season demand fades. Intel’s revenues fell 7% and 10% sequentially in fiscal 1Q15 and 1Q16, respectively.

For fiscal 1Q18, Intel expects its revenues to fall 12% sequentially to $15 billion as seasonal demand for enterprise server processors and programmable solutions fades. However, this $15 billion in revenues represents a 5% YoY rise, after excluding McAfee revenues.

Still, there’s a possibility that Intel’s revenues will be delayed due to the hardware design flaws Spectre and Meltdown, which have exposed Intel’s PC and server chips to data security issues. We’ll examine this further in the next part of the series.

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