Intel Corporation: Why Investors Should Expect a Strong Q4

It's been a ho-hum year for Intel shareholders. Down about 3% year to date, it would be easy to lump Intel stock in with other tech laggards in 2015, but that would be a mistake. Despite its so-so yearly performance, something interesting has happened to Intel the last three months: Its stock price is up nearly 23%, as of this writing. Combined with its nearly 3% dividend yield, Intel has finally seemed to catch the eye of growth and income investors.

Intel CEO Brian Krzanich's strategic objective of transitioning the longtime PC chip king into a cloud and Internet of Things (IoT) leader is beginning to take hold. Just as importantly, investors seem to be slowly warming to the notion that Intel's future is not reliant on the slowing PC industry. Intel is about a lot more than PCs now, and based on recent sales data from its most important market, investors should expect a strong end to its year of transition.

Survey saysThough a few regions around the world showed signs of weakness in server sales last quarter, overall, it was a banner Q3. The number of servers shipped in the third quarter climbed 9.2% to 2.76 million, and once again, longtime industry leader Hewlett-Packard led the way with 613,101 units, good for 22.2% of the market.

In large part thanks to a strong U.S. dollar, overall server revenue didn't climb quite as high as the shipment volume increase, but the 7.5% jump to $13.5 billion was nothing to sneeze at. Improving server sales are great for the HPs of the world, but what do they have to do with Intel's pending Q4 and fiscal 2015 earnings news slated for Jan. 13? A lot.

What's the big deal?It wasn't Intel's total revenue that sparked investor's interest the past few months. At $14.5 billion, sales were flat last quarter compared to the prior year's $14.6 billion, and earningsper share (EPS) actually declined 3% to $0.64.

The tepid revenue results were largely due to a 7% drop in Intel's client computing group revenue-- home to PC sales -- to $8.5 billion from last year's nearly $9.2 billion. That's the bad news. The good news is that despite the precipitous decline in its largest division as measured by sales, Intel was still able to post revenue results nearly equal to 2014's Q3. How Intel made up the revenue disparity, along with the aforementioned server sales improvement, is why investors should expect a strong fourth quarter.

A brave new worldAs the shift to the cloud and IoT continues, the volume of information is increasing at a seemingly exponential rate, and that requires data centers with servers large enough and powerful enough to both house and utilize all of that data via detailed analytics. That's where Intel enters the picture. Last quarter's data center sales of $4.1 billion were a 12% improvement, and that went a long way toward making up the shortfall in PC-related revenue.

On a smaller scale, Intel's IoT unit also climbed double digits last quarter to $581 million. Combined, data center and IoT make up a larger piece of Intel's total revenue pie, further distancing it from the waning fortunes of the PC market. And with the $16.7 billion acquisition of Altera in the wings -- a deal seen as yet another step to bolster its already dominant data center market position -- Intel's future in server chip sales looks awfully strong.

With server sales on the rise and Altera on deck to strengthen Intel's data center market position even further, 2016 is shaping up to be a stellar year. But investors won't have to wait a year or more for Intel to deliver where it counts, because a strong Q4 is on the horizon.

The article Intel Corporation: Why Investors Should Expect a Strong Q4 originally appeared on

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.