Intel Security Issues and Cost Management in Focus -- Earnings Preview

By Ted GreenwaldFeaturesDow Jones Newswires

Intel Corp. is scheduled to report fourth-quarter earnings after the market closes Thursday. Here's what you need to know:

EARNINGS FORECAST: Analysts expect Intel to report earnings of 86 cents a share on an adjusted basis, according to a survey by Thomson Reuters, up from 79 cents a year earlier. Intel's adjusted earnings generally exclude restructuring charges and certain items arising from acquisitions.

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REVENUE FORECAST: Analysts expect total revenue of $16.34 billion for the quarter, down fractionally from $16.37 billion a year earlier.

WHAT TO WATCH:

SIGNS OF IMPACT FROM CHIP FLAWS: Concern over security holes in all nearly all processors, which came to light earlier in January, threatens to overshadow the disclosure of Intel's financial performance. Intel, which has overwhelming market share in PC and server processors, has been working to devise software patches and promised next-generation products will close the holes. However, the software fixes so far slow down chip performance. Intel has said it doesn't expect the situation to affect its finances, but investors will be looking for evidence in the form of shifts in market share, sales, prices, rebates and the like, said analyst Blayne Curtis of Barclays PLC.

HOW INTEL IS CONTROLLING COSTS: Intel lately has been squeezing costs to keep margins up as the PC market has waned and server growth has slowed. The company has said it would bring its annual operating expenses to 30% of revenue by 2020, and gave investors a pleasant surprise by cutting expenses from roughly 35% to 30% of revenue in the third quarter, said analyst Stacy Rasgon of Bernstein Research. Investors will be looking for continuing thrift.

DATA CENTERS PICKING UP THE SLACK: Sales of chips used in PCs still contribute more than half of Intel's total revenue, but that percentage has been falling as PC sales continue their persistent decline. The company has been counting on sales to data centers, especially cloud-computing providers, to pick up the slack. But revenue growth in that segment slowed from around 11% in 2015 to around 8% in 2016. To meet the company's 2017 expectation of high single-digit data-center growth, the fourth-quarter growth rate will need to be higher than 8%, said analyst Srini Pajjuri of Macquarie Capital (USA) Inc.

Write to Ted Greenwald at Ted.Greenwald@wsj.com

(END) Dow Jones Newswires

January 25, 2018 06:14 ET (11:14 GMT)