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Weak PC Sales Expected to Hurt Intel's Q1 Results

Last month it cut its sales outlook by $900 million on weaker-than-expected PC demand. Now what?

Nick Knupffer / IntelPR

Chipmaker Intel has already warned the markets that its first quarter results will come in weaker than previously expected. The question that will face its shareholders on Tuesday, when it reports earnings after markets close, is whether or not it sees any brighter days ahead.

Last month, Intel slashed the midpoint of its revenue outlook by $900 million to $12.8 billion. Intel blamed the problem on slower-than-expected demand for PCs, especially among small- and medium-sized businesses that are taking their time upgrading older machines running Microsoft’s Windows XP.

Analysts surveyed by Thomson Reuters now expect Intel to post earnings of 40 cents a share on sales of $12.9 billion and to offer Q2 guidance of 48 cents a share on $13.5 billion in revenue. Last month, Intel said it expected its gross margin, a closely watched metric indicating profitability, to be about 60 percent. In Q4, its gross margin was 65.4 percent.

Like other tech companies, Intel has struggled with the strong U.S. dollar, which can hurt companies that do a lot of international sales after they account for exchange rates. Expect to hear CFO Stacy Smith specify exactly how badly these “currency headwinds” hurt during a conference call.

Sales of chips to PC makers dominate Intel’s business, accounting for 62 percent of sales last year. And while the market showed signs of recovery at the end of 2014 after posting its worst year ever, research firms Gartner and IDC last week reported further year-on-year declines in the first quarter.

Also expect questions from analysts about reports that Intel has been in talks to acquire chipmaker Altera. Such a deal makes a certain amount of sense and would boost revenue by about $2 billion. However, the talks were said to have fizzled out last week. If the talks are really over, Intel executives will likely say so unambiguously. If they decline to answer, that may be a hint that the talks are still ongoing.

This article originally appeared on Recode.net.