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Can Intel Corporation (INTC) Survive the Slow Death of the PC?

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Intel Corporation (NASDAQ:INTC)‘s been under a lot of fire lately for its reliance on the dying PC industry. Today’s earnings do little to comfort skittish investors, as the stock has fallen over 5% after-hours, after a confusing jump in the final minutes of the trading day. What’s behind this yo-yo performance, and what does it mean for Intel going forward? Let’s take a closer look.

What the numbers tell you
Intel’s fourth quarter very nearly replicates its third quarter disappointment. That quarter, analysts were cautiously expecting $0.49 in earnings per share, and were blown away by a beat to the tune of $0.60 per share. This quarter, a $0.48 EPS result was a narrower beat of the $0.45 per share that analysts were expecting; but a beat is a beat, right?

Weekly options in play on Intel Corporation (INTC)The problem today, as it was last October, is that Intel’s guidance wasn’t good enough for the Street. Last October, Intel’s fourth-quarter forecast of $13.6 billion in revenue, and an implied (by my fellow Fool Anders Bylund) bottom line estimate of $2.5 billion, didn’t impress analysts who were expecting better numbers. This perception of weakness contributed to a month-long slide  that slashed 10% off Intel’s value, before a year-end rally brought it back to even. Intel Corporation (NASDAQ:INTC) missed that $13.6 billion revenue forecast this quarter by about $100 million; but, as with October’s report, today’s after-hours slide can be blamed solely on another weak guidance estimate — 2013’s first quarter revenue estimate of $12.7 billion (at the midpoint) comes in $200 million below the Street’s consensus.

What might be more concerning is that this is just another quarter of sequential declines for Intel Corporation (NASDAQ:INTC), which has been gradually losing steam. Both revenue and net income peaked at the tail end of 2011, and the company has enjoyed nothing close to a holiday sales bump this year:


Sources: Morningstar  and company earnings report .

What does it mean for the future?
The only bright spot in Intel’s report was growth in its Data Center Group , which has been no doubt buoyed by demand for cloud computing. That segment is up 6% in 2012, to $10.7 billion in revenue. The PC segment was down 3% for the year, and Intel’s smallest segment, the “Other Architecture” group, is down 13% from 2011.

In 2013, Intel envisions low single-digit growth in revenue, which would put the company at about $55.5 billion for the full year, if we assume 4% growth from 2012’s total revenue of $53.3 billion. Given Intel’s other tidbits of information — gross margin of 60%, operating expenses of $18.9 billion, and a 25% tax rate — Intel’s implied full-year earnings are in the range of $10.8 billion, about $200 million lower than 2012’s final result. Capital expenditures of about $13 billion are likely to contribute to further free cash flow declines from what we’ve already seen since the end of 2010, as that will represent an 18% increase in capex from 2012.

Intel’s conference call promoted the upcoming release of its Bay Trail tablet chip for both Windows and Android, the imminent production of 14-nanometer chips (the rest of the industry is currently working on 22-nanometer chips ), a plan to integrate Wi-Fi into mobile chips early in 2014, and an eventual transition to 10-nanometer chips. CEO Paul Otellini blamed the drop in PC revenue on inventory drain throughout the industry, but it’s still going to be important for Intel Corporation (NASDAQ:INTC) to transition more aggressively into tablets in order to regain any form of positive momentum.

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