Chip maker Intel Corporation (NASDAQ: INTC) hosts its analyst day on Nov. 21 in Santa Clara. The event would be the first for CEO Brian Krzanich, who took the helm in May of this year, along with President Renee James following the eight-year tenure of Paul Otellini.
The key focus will be on the sustainability of PC trends, especially how the corporate demand is faring. PCs have been sub-seasonal but stable, primarily due to strength in the corporate PC market ahead of an XP license expiration.
Demand trends over the next few quarters are critical to get more conviction on the PC demand trends as enterprise refresh has a significantly positive impact in the near term.
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Microsoft Corporation (NASDAQ: MSFT), on its earnings call, said that the PC business is stabilizing given strength in the professional segment but that non-professional revenue (consumer) was down 22 percent sequentially, and the company continues to see volatility in the consumer PC space.
"We believe most of the supply chain continues to see Consumer PC segment weakness. We believe investor focus could revolve around the sustainability of Corporate PC demand post the XP licensing renewal surge, and what could potentially revive consumer PC demand against the tide of tablets," Sterne Agee analyst Vijay Rakesh wrote in a note to clients.
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Investors may look for updates on Intel's process yields on its mature 22nm node and its efficiently designed new system on chip (SoC) namely Haswell (for high productivity client devices) and BayTrail (for low power client devices).
Intel believes PC demand in mature markets (U.S. and Western Europe) have bottomed, and momentum in new 2-in-1 PCs using its Haswell chip priced sub-$349 and new BayTrail chips priced sub-$299 will be a key driver for the stock in 2014. However, the market lacks co! nviction on this thesis and may need more proof through tablet and possible smartphone wins.
In addition, Intel recently said it is three-months behind schedule in its ramp of 14nm chips for high end PCs (was originally scheduled for the fourth quarter 2013) due to manufacturing complexity and defect densities. Intel reported yields have improved significantly, and this could suggest its competitors will have similar challenges at 14/16nm nodes. The market will want updates on this front.
Meanwhile, Intel continues to be bullish on its data center segment, so investors will focus on drivers of data center strength and competition from ARM Servers. Intel's third quarter data center revenues rose 12.2 percent to $2.9 billion.
The Street will be interested in mobile handset objectives for 2014 in an intensely competitive market, mainly from Qualcomm, Inc. (NASDAQ: QCOM). Qualcomm's technology road maps and pricing trends may hurt Intel's prospects in the mobile space.
"We believe that driving an accretive handset segment, versus its very profitable PC segment, will be a challenge for INTC," Rakesh said.
The sustainability of capital returns would also be a key focus on the event as Intel has been returning greater than 100 percent of free cash flow in buybacks and dividends. As of the end of the third quarter, cash and cash equivalents, short-term investments and trading assets were $19.1 billion.
Intel continues to lower its expectations for 2013 as capex went to $10.8 billion from $11 billion on delayed fab spending. Intel has also decelerated its share buybacks in the last seven quarters relative to fiscal 2011.
"With INTC returning more than 100% of FCF in buybacks and dividends, investor focus will be on sustainable cash return strategies and capital allocation objectives for 2014," Rakesh added.
For the fourth quarter, the company may reiterate its guidance given du! ring its ! last quarterly report. It sees revenue of $13.7 billion, plus or minus $500 million and gross margin of 61 percent, plus or minus a couple of percentage points.