Intel braces for lackluster Q3 results

SAN FRANCISCO — Analysts are predicting a lackluster third quarter for Intel, saying robust sales of chips for cloud storage can only do so much to make up for a lagging PC market.

Intel's earnings report is due Tuesday after the market closes.

“At least with the third quarter earnings, it’s the ‘same old, same old,’” said Mark Hung, lead Intel analyst for market researcher Gartner.

Earnings per share of 59 cents on revenue of $14.22 billion is the consensus forecast from Thomson Reuters.

Shares of Intel are up about 10% over the last three months, but most analysts are still wary of ongoing weakness in the PC market and how it will affect the company.

Researcher IDC predicts PC shipments will fall 8.7% in 2015, with no stabilization in sight until  2017. That's five straight years of decline.

Gartner reported last week that worldwide PC shipments have fallen 7.7% compared with the third quarter of 2014.

This is in part due to the rise of tablets and smart phones but also because of the high value of the U.S. dollar, which depresses international sales.

​There had been some hope Microsoft's launch of Windows 10 in the third quarter would boost PC sales, but it has had a minimal impact so far as most users are upgrading to the new operating system on their current PCs rather than buying new ones, Gartner said.

The big unknown is how well Microsoft’s new Surface Book laptop and Surface Pro tablet will do. They won’t ship until the end of October, giving them just two months for the holiday selling season, Hung said.

“If the Surface Book starts to take off, that bodes well for all the other PC forms, because I’m sure they’ll be coming out with their interpretations of it. But it’s way too early for any of that to show up in Intel sales,” he said.

Any uptick will arrive during the fourth quarter when computer manufactures will be selling for the holiday season.

Those sales could be slow if enough PCs weren’t sold during the back-to-school season, leading to leftover inventory that will need to be sold first before companies start buying more, said Patrick Moorhead, president of Moor Insights and Strategy in Austin, Texas.

There's some evidence of a slight pickup in PC sales out of Asia, Hung said. “It’s definitely way too early to tell, but it will be interesting to see if Intel gets any bump from that,” he said.

While PC sales remain weak, a continuing bright spot for Intel is sales to data centers.

The growing trend towards storing information in ‘the cloud’ requires large numbers of servers, which use chips. That represents a growing market and “the largest part of Intel’s profits these days,” said Hung.

Some, however, see an overall positive trend for the chip-making giant out of Santa Clara, Calif.

“We’re looking for a good quarter,” said Betsy Van Hees, an analyst with Wedbush Securities in Los Angeles.

Her optimism comes in part of the ramp up of Skylake, Intel’s new chip incarnation. In addition, Microsoft’s Windows 10 should result in more sales, she believes.

It also won’t be difficult for Intel to beat expectations. On its last conference call, the company said it expected year-over-year earnings to be down 1% “and the street is looking at 2%,” said Van Hees.

That’s making her bullish. After multiple quarters of inventory reductions, both Windows 10 and Skylake have arrived.

“The outlook for Intel is much better than it has been for the last several quarters,” she said.

Though of course there’s always the one remaining wildcard.

“Will consumers step up and buy?” she said.

Follow Paste BN tech reporter Elizabeth Weise on Twitter: @eweise.