What Do Analysts Really Think about Intel’s Fiscal 2016 Guidance?
Why Were Investors Surprised at Intel’s Fiscal 4Q15 Earnings?
Intel’s fiscal 2016 guidance
In the previous part of this series, we saw that Intel’s (INTC) gross margin is expected to improve slightly in fiscal 2016 due to a reduction in depreciation expense. The company has reported a strong guidance of mid-single-digit to high-single-digit revenue growth in fiscal 2016 compared to a 1% YoY (year-over-year) decline in fiscal 2015.
Intel has a history of reporting optimistic annual guidance. But many analysts believe this time the company has reported conservative guidance. Many analysts have upped their ratings for the company. But analysts don’t expect much upside in the stock price. They do expect a strong upside for Qualcomm (QCOM) stock.
Intel’s guidance history
As you can see in the above table, Intel’s revenue guidance was more optimistic than the actual results in three of the past four years. However, it managed to achieve its other targets related to expense and profits.
In its fiscal 2015 earnings, Intel managed to report a gross margin of 62.6%, in line with its guidance of ~62%. Operating expense of $20.1 billion was also in line with the guidance of $20 billion. However, the company missed on its capital spending target of $10 billion. Actual spending was $7.3 billion in fiscal 2015.
Factors that would affect fiscal 2016 guidance
Improving on its past mistakes, Intel has posted a conservative guidance for fiscal 2016. It expects certain factors to affect its earnings negatively.
The Altera acquisition is an expensive deal, equating to more than 7.5 times its 2016 sales. There are many acquisition-related charges associated with it that would lower GAAP (generally accepted accounting principles) earnings.
Altera is expected to contribute just above $1.6 billion to Intel’s revenue in 2016 and post a revenue growth in the mid-teens. However, its contribution to gross margin would be minuscule, as it’s a small part of Intel’s business.
China (MCHI) is a major PC (personal computer) and mobile market. Economic slowdown in this area would slow growth in fiscal 1Q16.
Even Advanced Micro Devices (AMD) and Taiwan Semiconductor Manufacturing (TSM) expect weak growth in fiscal 1Q16 due to uncertainty surrounding the macro environment, especially in China.
While Intel has been missing revenue guidance, it has also been underestimating competition in technology. We’ll shed more light on this in the next part of the series.
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