Intel Defies PC Market Trends, Revising Estimate to $29

Intel (NASDAQ:INTC) reported its Q3 2011 earnings recently and based on continued growth in microprocessor shipments and stable pricing compared to last quarter, we have updated our price estimate to $29. The earnings was a surprise to everyone, especially because there was a general consensus that PC market is showing signs of weakness. Nevertheless Intel, whose rival AMD (NYSE:AMD) reports next week, continued its exceptional revenue growth riding on support from emerging markets and enterprise spending. While Apple’s (NASDAQ:AAPL) iPad and other tablets may be booming, it seems like PCs aren’t going down anytime soon.

See our full analysis for Intel

Emerging Markets Drive Shipment Growth

While the consumer demand for PCs in developed markets such as the U.S. and Western Europe remained sluggish, it was more than compensated by consumer demand in emerging markets. The company mentioned that the growth in China, India, Turkey and Indonesia increased by low to high double digits. ^[1] In fact, China and Brazil now appear in world’s top 3 PC markets.

We earlier proposed that due to the microprocessor mix shifting to emerging markets, the average processor pricing could go down and affect revenues. However it seems that this is not the case as Intel mentioned that average selling prices (ASP) remained flat compared to Q2 2011. ^[1] In fact the consumers in emerging markets such China are buying upscale PCs. ^[1]

We forecast significant ASP increase in 2011 overall, due to the launch of Sandy Bridge. Nevertheless going forward we expect prices to go down due to manufacturing efficiency and competition.

Enterprises Are Buying Too

Besides aid from emerging market consumer demand, Intel is enjoying the purchase of PCs from enterprises. This is surprising and given the global economic state, one would have expected enterprises to be more cautious. However this does not seem to be the case. Recently, IBM also beat the earnings estimates and reinforced the notion that the corporations are willing to spend on technology to improve productivity. ^[2]

Our price estimate for Intel stands at $29, implying a premium of about 20% to the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Intel’s Q3 2011 Earnings Transcript, Seeking Alpha, Oct 19 2011 [↩] [↩] [↩]
2. I.B.M. Beats Forecasts and Raises Profit Estimate for Year, The New York Times, Oct 17 2011 [↩]