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The world’s biggest chip maker, Intel, reports second-quarter results after markets close Wednesday, and once again it will be doing so at a time when the largest business segment for its chips — the personal computer market — is suffering from a steep decline.
Analysts surveyed by Thomson Reuters expect Intel to post earnings of 50 cents a share on revenue of about $13 billion. They’re also calling for Intel to issue an outlook of 56 cents on revenue of $14.1 billion.
The thing about the second quarter of the year is that it is always Intel’s weakest, seasonally speaking, says analyst Patrick Moorhead of the research firm Moor Insights and Strategy. “If you go back 25 years, Q2 has always been the worst period of the year, so no one should ever expect good things,” he said. “But it is the quarter where Intel always sets the table for the third and fourth quarters, which are always much stronger.”
Intel’s shares have been whacked pretty hard in recent months, falling more than 22 percent from a recent peak in mid-December. On Tuesday the shares closed at $29.64, off a fraction of a percent.
The biggest reason for the steep drop has been the state of PC sales. After weathering the worst year on record in 2013, and a slightly less horrible one in 2014, hopes had risen that 2015 would be a turnaround year.
It hasn’t turned out that way so far. Earlier this month the research firms Gartner and IDC reported year-on-year sales declines of 9 percent and 12 percent respectively. (IDC counts Chromebooks and certain small notebooks in its PC stats; Gartner doesn’t.) The declines prompted Intel competitor Advanced Micro Devices, which reports results on Thursday, to cut its Q2 revenue estimate on July 6.
Moorhead says there’s reason to expect better news from Intel in the second half of the year. For one thing, Microsoft is releasing Windows 10, which is likely to be the first revision to the operating system in a few years that has the potential to get businesses and consumers alike interested in buying a new machine. And Intel has a new generation of chips coming later this year, known by the code name Skylake. “With Skylake you’ll see thinner and more powerful notebooks than have ever been on the market before, and at prices that have never been seen before,” Moorhead said.
Gaming enthusiasts, he said, may go for features that allow consoles like the Xbox One and PlayStation 4 to stream to a Windows PC, and will allow a PC to connect to an Oculus Rift virtual reality set. “If you want to have an Oculus Rift experience with your Xbox, you’ll have to use your PC as a middleman,” Moorhead said. “For the first time in a long time, Microsoft has gotten gaming right.”
It wouldn’t be the first time that a new version of Windows has fueled hopes for improvements in PC sales, and often those hopes have turned out to be a bust. Count Mike McConnell of Pacific Crest Securities among the doubters. In a note to clients Monday, he called the outlook for PC sales in Q3 “sub-seasonal,” or worse than a typical seasonal pattern would suggest. He wrote that conversations with PC manufacturers suggest modest growth in the “mid single-digit” range. That’s lower than the 5-10 percent that tends to occur between the second and third quarters of the year, he wrote.
The business of selling chips for servers — Intel’s second biggest segment — is looking better. For one thing, server sales at Hewlett-Packard, the world’s biggest supplier of the machines that go into data centers, grew by 17 percent year-on-year after adjusting for the effect of currency exchange rates, and the company had a strong backlog of orders going into the third quarter. That’s in line with a worldwide market where server sales surged by 17.2 percent in the first quarter of the year. That optimism has been tempered a bit by earnings warnings from Seagate, a supplier of hard drives, and QLogic, which supplies networking components for certain high-end servers.
AMD reports on Thursday, one day after Intel. It has already warned of a sales shortfall, and has been the subject of recurring rumors that it may be the target of a buyout. It sells both PC and server chips that compete with Intel’s as well as graphics chips that compete with Nvidia. Moorhead said its next generation of PC chips stands a chance of being competitive with Intel’s mid-range Core i5 notebook chips. “It’s a good product, but AMD will have to execute flawlessly on its manufacturing process, and it hasn’t done well on that front recently,” Moorhead said.
AMD has also been the target of recurring rumors that it may be bought out by either Samsung or Qualcomm. Neither is likely for the time being because of AMD’s complicated patent cross-licensing arrangement with Intel.
This article originally appeared on Recode.net.
