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  • Intel: Key Things To Watch Moving Forward 0 comments
    Jul 16, 2014 6:51 AM | about stocks: INTC

    Intel's Tuesday earnings report was a nice little surprise for investors. After breaching its 10-year high in June, the Silicon Valley chip maker continues to benefit from strong PC sales, posting a 40% profit jump. This resulted in a Q2 EPS of $0.55 on revenue of $13.8 billion, beating analyst expectations of $0.52 and $12.8 billion respectively. But the question is will the momentum continue?

    The profit jump is mostly due to Microsoft ending support or Windows XP in April, which prompted many companies to finally upgrade their PCs to run a more recent version of the operating system. "The installed base of PCs that are at least four years old is now roughly 600 million units, and we are seeing clear signs of a refresh in the enterprise and small and medium businesses," Mr. Krzanich said in a conference call. Tablet sales are also softening a little bit, but how long will the PC surge continue?

    Krzanich has also recently started pushing for Intel to create chips for non-computer devices, lumping them all together with the term the Internet of Things. Revenues saw a healthy gain of 32% for that segment, but it needs a longer track record in order to determine if it can be more than just a fad.

    The biggest concern I have is where Intel is on mobile. In the report, Intel noted that its operating loss for the mobile and communications chip segment increased to $1.12 billion from $761 million the previous quarter, with revenue slipping 81% to $51 million. While PC sales are strong at the moment, the future is still in mobile. While the heavy spending is necessary for Intel to catch up in a market where they've been left in the dust, I don't see any of it coming to fruition for another year or two.

    While none of this is a strong indicator of whether to buy or sell Intel, it's important that investors know the story behind the story. Intel has several other tricks up its sleeve as it's still working on its widely discussed smart wearable products and its shot at improving Android TV after it failed in 2013. So there's no cause for alarm. But there are certainly reasons why the momentum we're seeing right now may falter at some point in the future if the stars don't continue to align for Intel.

    Stocks: INTC
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