Chipmaker Intel (INTC -0.05%) topped its second-quarter earnings estimates, with personal computer hardware sales measurably improving from the first quarter's miserable figure. Because this business accounts for over half of the company's total sales, fresh turnaround chatter is surfacing.
For instance, Forrester Research's Glenn O'Donnell told Reuters, "Intel's turnaround is finally happening." And Raymond James Managing Director and Senior Analyst Srini Pajjuri told Yahoo! Finance: "From a demand standpoint, the PC market is starting to stabilize. ... Things are normalizing and looking up for Intel" on the personal computer front.
To be fair, even if only because demand can't get much worse than it has been of late, things truly may be "looking up" for Intel. However, if the bullish PC narrative now is the top reason you're interested in owning Intel, you might want to rethink the matter. The personal computer market is still far from firing on all cylinders again.
"Better" doesn't necessarily mean "good"
Intel turned $12.9 billion worth of revenue into a per-share operating profit of $0.13 last quarter versus analysts' calls for a top line of $12.2 billion and a loss of $0.04 per share. Stoked by the earnings beat and encouraging guidance for the quarter now underway, share prices bolted higher on Friday of last week, setting up a move to a new multi-month high this week.
It's arguably too soon to say the PC market is meaningfully on the mend, though.
Numbers from technology market research outfit Gartner put the matter in perspective. While it is true that Q2's personal computer shipments of 59.7 million units are better than the first quarter's tally, bear in mind that the first quarter's shipments of less than 55.2 million computers is the weakest figure since the first quarter of 2020. That's when the COVID-19 pandemic was first starting to rattle supply chains. The bigger trend is still pointed downward.
Data source: Gartner. Chart by author. Figures are in thousands.
And Intel's numbers jibe with this data. Although Q2's client computing (personal computer hardware) group revenue of $6.8 billion is better than Q1's figure of $5.8 billion, it's also down 12% from the year-ago number. Perhaps more alarmingly -- as is the case with global sales of personal computers -- Intel's computer processor revenue remains in a bigger-picture downtrend that started following its peak back in early 2021.
Data source: Intel. Chart by author. All figures in millions.
You may not want to hold out for the implied brewing turnaround anytime soon either. Although analysts broadly believe worldwide personal computer sales will grow from here, it's apt to be anemic growth. International Data Corp. predicts PC unit shipments will only grow at an annualized clip of 2.5% between 2023 and 2027.
Price increases will somewhat help. Technavio expects worldwide PC revenue to grow on the order of 8% through 2026; Mordor Intelligence pegs the figure closer to 9%.
Even so, with those impending price increases, Intel's costs are also rising. Note that the company's decline in client computing operating income has almost matched the segment's decline in revenue on a dollar-for-dollar basis. Intel isn't scaling down all that profitably.
Intel stock is fully valued, given its risk and reward
Intel isn't doomed. It's easing into artificial intelligence (AI), which is a higher-growth market. It also continues to work on edge computing and autonomous vehicle technology, which could eventually become major profit centers. In the meantime its data center hardware business outside of AI is finding respectable traction.
Even so, computer processors remain the company's single-biggest business, and the PC market isn't doing nearly as well as the recent rebound narrative implies. Intel simply did less bad last quarter than it has in recent quarters (and Q1 in particular); any client computing revenue number was likely to look relatively better.
Just be careful if you're mulling a position in the stock, or are already in one. Analysts seem uncomfortably optimistic that a full recovery of the PC market is brewing. But there's no actual evidence that it's happening nearly as quickly or as wholly as is being widely presumed.
Maybe this will help keep things in check: Despite time and opportunity to do so, these same analysts didn't dramatically raise their consensus target prices in the wake of the stock's recent gain. In fact, shares are almost at that average target of $36.60, and still rated mostly at a hold. That doesn't exactly inspire hope for more immediate gains.
