"Historically, Intel stock has good correlation with gross margins and Intel gross margins which peaked in the mid 60's and may climb to 63% to 65% again in 2014/2015," writes Roth's Krishna Shankar, one of three analysts to upgrade Intel's (INTC +6.8%) following its guidance hike.
On top of boosting revenue guidance, Intel has hiked its Q2 gross margin forecast by 100 bps to 62%-66% - up from a Q1 level of 59.7%.
Shankar notes Intel's blended ASPs have been rising the last 8 quarters due to Ivy Bridge/Haswell launches, manufacturing efficiencies, enterprise/emerging markets strength, and a "lack of competition in PC and server markets from a weakened AMD." He is, however, worried Intel's server CPU "quasi-monopoly" could be challenged by upcoming ARM server CPU launches.
Some of those with a less enthusiastic take on Intel's numbers, such as Nomura, argue business PC sales are getting a temporary boost from Microsoft's decision to end Win. XP support (sparking upgrades), and that consumer PC demand is still soft.
In response, Credit Suisse argues that even if 70% of Intel's Q2 upside came from corporate demand, it would only equal 5% of the XP base. It sees the 2H launch of Intel's Grantley server CPUs (previous) providing further EPS upside.