A Tale of Three Hardware Suppliers

This afternoon served as a powerful reminder that not all hardware companies are created equally.

As I write this, shares of Intel Corp. (INTC) are rallying after the chipmaker posted first-quarter earnings that met expectations. Compared with Q1 2014, operating income increased 4% to $2.6 billion and earnings per share improved 8% to $0.41. Company-wide revenue remained unchanged at $12.8 billion. This just missed the $12.9 billion consensus estimate.

The top-line results were mixed across Intel’s business segments. While Intel’s PC business saw sales decline 8% over last year, its data center business and Internet of Things group posted 19% and 11% annual sales growth, respectively. Intel also reported that it returned $1.85 billion to shareholders between dividends and stock buybacks.

Looking ahead to Q2 2015, Intel expects revenues in a range of $13.15 billion to $13.25 billion. This would represent a modest decline over the $13.83 billion in sales brought in for Q2 2014. For FY 2015, Intel expects revenue to remain largely unchanged from the $55.87 billion in sales from 2014. This is slightly better than the consensus estimate of $55.69 billion.

I’ve been keeping close tabs on INTC leading up to this earnings report (I recommend it in my Blue Chip Growth newsletter), and I’m pleased to see that it pulled through. However, a few other big computer parts companies are on deck to report earnings this week, and it’s not going to be pretty:

Tomorrow, SanDisk Corp. (SNDK) is scheduled to report its first-quarter results after the market closes. Analysts are calling for $0.66 earnings per share on $1.31 billion in revenue. In other words, SanDisk is expected to see earnings plunge 54% and sales fall 13% over this time last year! To add insult to injury, the consensus earnings estimate keeps getting revised lower. In the past 90 days, it has fallen from $1.20 to $0.66 per share. This suggests that the bottom has fallen out on SanDisk and that it’s going to have a difficult time living up to even these meager expectations. SNDK is a D-rated sell.

On Friday, Seagate Technology Plc (STX) will release its first-quarter sales and earnings before the opening bell. This report will also likely be a disappointment, the consensus calling for $1.04 EPS on $3.41 billion in revenue. Compared with Q1 2014, this translates to a 22% earnings decline and flat sales. Analysts have also been cutting their earnings expectations for Seagate: The consensus estimate has fallen from $1.27 to $1.04 per share in the past 90 days. STX is also a D-rated sell.

As earning season rolls along, the gulf between the “winners” and the “losers” will widen even further. If you want to stay on top of the opportunities (and pitfalls) tied to earnings season, check back in on my daily blog.

Sincerely,

Louis Navellier

Louis Navellier

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