The personal computer is dead. Long live the PC.
While tablets and mobile devices are irrevocably altering the computing landscape, PCs aren't yet extinct. In fact, customers snapped up more than 300 million of them last year. And that is money in the bank for Intel Corp.
Granted, there is less money to be made than in years past. Yet Intel's investors are rejoicing that the bad news around PCs hasn't been worsening. And when the company reports fourth-quarter results Thursday, it will have the luxury of having gotten some bad news out of the way at its Nov. 21 analyst meeting.
Back then, it projected revenue, gross margin and operating income would be flat for 2014. But flat is better than down. And Intel said it was going to take a more pragmatic approach to its outlook, a move welcomed by investors.
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Following the meeting, three analysts upgraded the stock. The shares are up 13% since Intel reported results in October and the stock's price/earnings multiple based on estimated profit for the next 12 months has risen to 14.1. That is about 9% above its five-year average, according to FactSet.
Why the optimism? Intel has pointed to signs of "stabilization" in PCs, which still accounts for nearly two-thirds of revenue. IDC says global PC shipments dropped 5.6% in the fourth quarter—the smallest decline in six quarters.
As for the fourth quarter, analysts expect Intel to post revenue of $13.7 billion, up 1.5% from a year ago, while earnings per share are seen at 52 cents versus 48 cents in the prior-year quarter.
Still, pragmatism only gets you so far. PCs are passé and an expansion of Intel's data-center business is too small to fully offset their decline. So Intel's stock is effectively a wager the company can realize ambitious plans for the mobile market.
Quadrupling the number of tablets shipped with Intel processors this year is a big goal, while efforts in wearable devices are still further out. The trick will be in holding down overall capital spending to keep margins from falling, even while investing in new areas.
Intel has been rewarded for being more reasonable, but it still has to show that investors will eventually find something new inside.