The world’s largest manufacturer of semiconductor products, Intel Corp. (INTC) raised its guidance for the second quarter of 2014. Also, the company increased its full-year revenue and gross margin expectations. Following the news, the shares rose 5.6% in after-hours trading.
The chip maker expects second-quarter net sales to be $13.7 billion (+/- $300 million), up from $13.0 billion (+/- $300 million). The company also increased gross margin guidance by 1 percentage point (pp) to 64% (+/- 2 pp); total operating expenses were increased to $4.89 billion, up $100 million from earlier expectations, and the annual tax rate is expected to be 27%, down from 28% expected earlier.
Additionally, management now expects full-year revenues to improve versus the prior expectations of its being in line with the 2013 level. Gross margin is now expected in the upper half of the previous range of 61% (+/- a few percentage points) and operating expenses to increase to $19.2 billion (+/- $200 million) versus the earlier expectations of $18.9 billion (+/- $200 million).
Management stated that the guidance increase was on account of stronger-than-expected demand for PCs used by businesses. Intel stated that it is witnessing improved demand in the PC business segment, which has been generally weak for some time now. The company’s revenues from its PC business fell during the first quarter, but the decline from the year-ago quarter was significantly lower than the last year.
PC shipments, though a recurring concern so far, are showing signs of improvement. As per the latest report by research firm IDC, 2014 PC shipments are expected to contract 6.0%, marginally, lower than the research firm’s earlier forecast of a decline of 6.1% predicted in March this year. The improved estimate is largely due to stabilization in Western Europe and higher-than-expected sales in other mature markets.
The research firm also stated that demand for tablets will continue to slow down this year, stabilizing the PC market. The system refreshes and enterprise system migrations beyond Microsoft's (MSFT) XP operating system are the primarily factors driving desktop PC shipments.
Intel remains the leading producer of microprocessors for the PC market. The company is well positioned to gain from this PC stabilization, whether customers opt for the all-new Windows 8 or Google’s (GOOGL) chromebook. Management stated that Intel was the leader on the Chrome platform.
Intel shares carry a Zacks Rank #3 (Hold). Another stock that looks attractive is Intersil Corp. (ISIL) with a Zacks Rank #2 (Buy).
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