Intel Boosts Revenue Forecast as Business Demand Picks Up

Jun 12, 2014 6:11 pm ET

(Updates with analyst’s comment in ninth paragraph.)

June 12 (Bloomberg) -- Intel Corp., the world’s largest semiconductor maker, raised its forecast for second-quarter revenue and said annual sales will increase for the first time since 2011 as demand for corporate personal computers picks up.

Sales this quarter will be $13.7 billion, plus or minus $300 million, compared with an earlier projection of about $13 billion, Santa Clara, California-based Intel said today in a statement. The company’s shares rose as much as 6.6 percent in extended trading.

The higher forecast provides another hint of optimism in the PC industry, where Intel gets the majority of its revenue, after two straight years of declining global shipments. The chipmaker is getting a lift as businesses replace aging machines following the end of Microsoft Corp.’s support for its Windows XP software -- a cycle that will continue into next year, said Suji De Silva, an analyst at Topeka Capital Markets Inc.

“There’s definitely an XP refresh factor here, and it’s going to be multiquarter,” said De Silva, who recommends buying Intel stock. He predicts that PC unit shipments will fall about 5 percent this year and may rise in 2015. New slimmer laptops, based on Intel’s latest products, may also convince consumers to increase spending on computers, he said.

Higher Profitability

Gross margin, or the percentage of sales left after deducting production costs, will be about 64 percent in the current period, Intel said today. That’s 1 percentage point higher than the company’s prior prediction. Intel cited higher PC unit volume for the increase in profitability. The company said it will report second-quarter earnings and update margin predictions for 2014 on July 15.

Analysts on average had estimated Intel’s sales would rise 2 percent this quarter to $13 billion, from $12.8 billion a year earlier, according to data compiled by Bloomberg. Revenue for 2014 on average was predicted to be $53.1 billion. Intel’s last annual sales growth was the 24 percent gain it posted in 2011, when revenue was $54 billion.

Earlier this month, market-research firm IDC estimated worldwide PC shipments will decline 6 percent this year, and said the drop may persist through at least 2018 as consumers shun desktops and laptops in favor of Internet-ready smartphones and tablets. The researcher said one bright spot for 2014 has been corporate demand, driven by replacements of Windows XP computers.

Mobile Business

To cope with the erosion of PC demand, Chief Executive Officer Brian Krzanich has made Intel’s mobile-chip business a priority, though the company has yet to make much headway. In April, Intel disclosed that first-quarter losses exceeded revenue in its mobile division. Sales in the unit fell 61 percent.

To keep revenue growing beyond this year, Intel will have to win business in handheld devices or woo more consumers back to PCs, said Cody Acree, an analyst at Ascendiant Capital Markets LLC.

“It’s nice incremental positive, but it’s largely around the expiration of XP,” said Acree, who recommends selling Intel shares. “It’s just a temporary upgrade cycle.”

Intel shares rose as high as $29.80 in extended trading after today’s announcement. Earlier, they rose less than 1 percent to $27.96 at the close in New York, leaving them up 7.7 percent this year.