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Intel Corporation (NASDAQ:INTC) reports its earnings on July 17, 2013. Recent data suggest the company will report a miss on expectations as the Personal Computer ("PC") segment of the smart device market continues to contract and Intel's penetration of mobile, in its early stages, fails to provide an offset.

Gartner estimates 2013 world smart device shipments at 2.3 billion, up about 5% from 2012.

(click to enlarge)

Unfortunately for Intel, the traditional PC segment is falling while the remaining segments are growing, and Intel is highly concentrated in PCs.

In a previous article, I crudely modeled Intel's PC Client business by using an average selling price of $105 for traditional PCs and $40 for mobile phones and tablets. For 2012, this produced a pretty good estimate of Intel's revenue; $34 billion revenue from its PC Client segment as shown below (smart phones and tablets are actually reported in "Other Intel Architecture" but the numbers are small so I have just lumped them in).

World Smart Device Market with Intel Inside

(millions)

2012 Devices

Intel Revenue

Smartphones

7.2

$ 288

Tablets

2.6

$ 104

Desktop Computer

133.6

$ 14,028

Portable Computer

181.8

$ 19,089

325.2

$ 33,509

For Q2 2013, IDC and Gartner both show PC shipments of about 76 million units, down from 85 million in 2012. The vast majority of these sport the "Intel Inside" logo, and I estimate 70 million units were supplied by Intel this quarter and maintain a view the $105 per device is a reasonable estimate of Intel content.

Tablets and smartphones are somewhat harder to estimate for Intel since data are scarce. However, we do know that Intel processors are powering over 130 tablets (primarily Windows 8 but a smattering of Android devices as well) and that Intel is inside a dozen smartphones or so. Smartphone shipments worldwide in 2012 were well over 200 million but Intel had very little participation. Accordingly, I am estimating that Intel supplied content to 4 million smartphones.

In the case of the tablet market, there is little doubt the market exceeded 50 million units in Q2 and, for the first time, Windows based tablets are likely to have held a meaningful share - perhaps as much as 10%. For the purposes of this article, I am assuming 5 million tablets were running on Intel processors in Q2 2013.

Piecing it all together, I get revenues for PC and smart device chips of about $7.7 billion. This compares to $8.7 billion from PCs in 2012 plus another few hundred million from mobile devices reported in "Other Intel Architecture" in Intel's statements.

World Smart Device Market with Intel Inside

(millions)

Q2 2013

Intel Revenue

Smart phones

4.0

$ 160

Tablets

5.0

$ 200

PCs

70.0

$ 7,350

TOTAL

79.0

$ 7,710

The remaining units of Intel continue to grow and I am estimating revenues of $5.0 billion, up from $4.6 billion in 2012.

In total, these estimates add up to $12.7 billion revenue for the second quarter of 2013, slightly less than the $12.9 billion midpoint Intel guided to in its Q1 2013 release.

Using an average margin of 58% as guided to by Intel, the quarter should produce something on the order of $2.2 billion of net income or about $0.44 per Intel share.

Intel shares are unlikely to react to these results alone since they are broadly in line with Intel's guidance and consistent with the trends affecting Intel at large. What will be more important, and what could have a significant impact on the short-term trading price of Intel shares, is whether Intel provides some information on the progress it is making penetrating mobile markets. If there is traction in evidence, the shares could react positively. In my view, it is a bit early to see much progress since many of the likely new devices containing Intel's recently announced Silvermont and Haswell processors have yet to be announced but should be in the marketplace in time for back to school and Christmas selling seasons.

Source: Intel Is Likely To Report A Miss July 17, But Fear Not - It Should Not Matter

Additional disclosure: I am long through options on 240,000 shares hedged with a 10,000 share short position