3 Key Areas to Watch When Intel Corp. Reports Q1 Earnings

By Anders Bylund Markets Fool.com

Semiconductor titan Intel (NASDAQ: INTC) is set to report earnings after the closing bell on Thursday, April 27. The report will cover Intel's first quarter of fiscal year 2017. Here's what to expect.

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By the numbers

Metric

Q1 2017 Guidance

Q1 2016 Result

Expected Year-Over-Year Change

Revenue

$14.8 billion

$13.7 billion

8%

Operating margin

24%

19%

26%

Earnings per share (diluted)

$0.56

$0.42

33%

Data source: Intel.

Meeting the official guidance targets would continue a four-quarter string of annualized revenue growth while breaking a somewhat longer negative trend in year-over-year operating-margin changes. The goals look even more confident when you consider that the year-ago quarter was one week longer, so Intel is working against a 7% headwind of accounting policies here.

These guidance targets assume a stable macroeconomic environment, but management took a deliberately cautious view of the prospect for recovery in the PC market. In particular, Intel didn't want to overplay its hand regarding PC growth in emerging markets such as China, Russia, and Latin America.

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Image source: Intel.

3 key issues to watch

Going beyond the plain numbers, Intel investors should keep an eye out for more detail on the PC and data-center markets, along with a fresh round of guidance updates.

1. PC market:Intel's management wanted to set a low bar for PC expectations this time. Analysts see signs of a stability there, backed by a strong report from systems builder Dell (NYSE: DVMT) and a rosy report on European PC sales from the market trackers at IDC.

If correct, these positive trends could move the needle for Intel's PC chip sales. The company is moving resources away from that division to strengthen efforts in automotive computing, the Internet of Things, and other higher-growth sectors. But it looks as if there's still some life left in this aging market segment.

2. Data center: Right now, the data-center story is built around cloud computing. Intel saw hardware orders from cloud service providers increase 24% year over year in the fourth quarter of 2016, while plain old enterprise-class server chip sales decreased by 3%. These market tendencies seem stable for the relatively long haul, but do watch out for more clues in Thursday's report.

3. Guidance: There are two important angles to the guidance game. First, Intel will provide a clear view of how the third quarter is shaping up. This will attract a lot of media attention and will indeed help investors build a world view for the currently ongoing quarter.

But the company will also update its full-year guidance targets, based on the first quarter's reported results and market trends going forward. This is often a far more useful set of goals. Any changes to important line items such as revenue, gross margin, or operating income can paint up Intel's true levels of success (or lack thereof) in bright, bold colors. If you only have time to dig into one of Intel's guidance tables this week, make it this one.

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Anders Bylund owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.