I may have been a few days too early in my post suggesting trimming positions in INTC. I still think the idea is right, but my timing now appears to have been less than optimal. …oh, well.
After yesterday’s close, just before entering its quiet period on June 17th–where it won’t talk about near-term business prospects until releasing 2Q14 earnings on July 15th–INTC revised up its guidance for the quarter by a significant amount.
Prior guidance was for 2Q14 revenue of $13.0 billion, That figure rises to $13.7 billion, a +5% change. It’s based on increased demand for business PCs. The expected gross margin goes up by a percentage point, and expenses rise slightly, both because of increased unit volume. The tax rate also increases from 27% to 28% for the remaining three quarters of the year.
Full year revenue expectations go from “flat” to “some” revenue growth.
For INTC, this is the first sign of life in its core PC operations for some time. That’s probably more important than the fact that gross profits for the quarter are coming in about 7% higher than the company had expected. The wording of INTC’s press release makes me think that this is a relatively recent development, and that the company is hopeful the increased sales are not a flash in the pan, but would prefer to wait at least another month before saying so.
The rising tax rate suggests to me that the new business is predominantly in the US.
If this sales increase is not just a blip, it has wider implications, as well. It suggests that US corporations must be starting to feel pretty good about their business prospects. Yes, there have been incredible advances in laptop performance and design over the past half-decade. But during the recession and recovery, corporate PC upgrades have been low priority, “luxury” items–sort of like getting new office furniture. A widespread move to get rid of the old clunkers would imply a return to more normal spending patterns.
INTC shares are up by about 6% in pre-market trading. It will be interesting to see if the strength lasts–and if the INTC press release sparks comments from PC makers.