HP's Q3 Shows PC Recovery Still Going Strong, Confirms Intel Is A Buy

Aug.21.14 | About: Intel Corporation (INTC)


Hewlett-Packard reported year-over-year increases in PC revenues and shipments.

A recovering PC market allows Intel's PC division to subsidize its relentless quest to build mobile market share while still sporting a 64.5% overall gross margin.

Intel is perfectly positioned with the 14nm Broadwell release as PC sales recover - look for upward earnings revisions in Q3 and/or Q4.

Hewlett-Packard (NYSE:HPQ) released its Q3 earnings today. As an Intel (NASDAQ:INTC) investor I was keenly interested to see how Hewlett's "Personal Systems" segment performed. This segment breaks out personal and commercial desktop and notebook sales and unit shipments. The "Personal Systems" segment reported an overall 12% YOY increase in revenues with desktop unit shipments up 9% and notebook unit shipments up 18% - overall unit shipments were up 13%. The great news for Intel longs is it confirms Intel's Q2 numbers showing the PC market is rebounding.

Subsidizing Mobile

Intel's PC client group made up 63% of its overall revenue in Q2 contributing $8.7B out of total revenues of $13.8B. An improving and healthier PC market allows Intel's PC client group to essentially subsidize Intel's mobile ambitions while maintaining high gross margins. Intel's mobile group is on pace this year to lose over $1B yet the company still reported a 64.5% overall gross margin in Q2 and guided towards 66% in Q3. Just think what Intel's margins (and share price) would be without mobile! Intel was non-committal during the Q2 conference call about how long it expected the PC recovery to last but the good news is Gartner is projecting the recovery through 2015.

Intel Is Well Positioned For Q3 And Q4

Intel has many tailwinds pushing it along including a massive $4B share repurchase program in Q3 and another ~$4B in Q4 as part of its $20B share repurchase program in Q2. On August 11th Intel announced it was shipping its bleeding edge, two-node leading 14nm Broadwell chips to OEM's to be in products on shelves in Q4. Intel did release some limited performance metrics on the chips but said more detailed metrics and new super thin, fanless, and powerful form factors with long battery life would be showcased at the Intel Developer Forum in San Francisco September 9-11. There will be hundreds of companies, engineers, and tech visionaries discussing new platforms, new ideas, and showcasing new creations. All of this leads me to believe Intel's share price will remain on its upward trajectory and I would not be surprised to see another upward earnings estimate revision before Intel reports its Q4 numbers.


I am long Intel January 2016 $40 Calls (LEAPS).

Disclosure: The author is long INTC.

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