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Intel's Numbers Project Strong Ahead of Earnings

Intel will kick off the earnings season for tech firms on Thursday and is likely to set the bar very high. Analysts predict not only will the fourth quarter of 2009 exceed projections, but that the momentum will carry right into 2010.

Analysts surveyed by Thomson Reuters expect Intel to post earnings of $1.9 billion, or 30 cents per share for the quarter ended Dec. 31, a huge improvement over the $234 million, or four cents per share during the year-ago quarter. Analysts also expect sales to rise 23.6 percent to $10.2 billion for the quarter, compared with $8.2 billion in Q4 2008.

Broadpoint.AmTech analyst Doug Freedman is particularly bullish, projecting Intel's December quarter to come in above consensus with strong results across all key metrics (revenue, gross margin and EPS) not only for Intel but AMD (NYSE: AMD) as well.

Freedman projects Intel will report revenue and GAAP EPS of $10.47B and $0.37, respectively, well ahead of the Street projections. "We expect Q4 to be above-seasonal, driven by continued replenishment of lean inventories through the majority of CY09 and a better than expected consumer holiday selling-season (particularly notebooks), along with our anticipation of a modest pick-up in enterprise," he wrote in a research note.

He added that Windows 7 contributed meaningfully to an expected above-seasonal Q4, as the firm estimates notebooks builds were up 14 percent from Q3.

FBR Capital Markets analyst Craig Berger is a little more conservative with his estimates, projecting at the end of December that Intel is likely tracking in line with the fourth quarter revenue guidance midpoint. "We are leaving our Intel 4Q revenue and gross margin estimates unchanged and believe Intel is tracking to grow revenues by 7% to 9% sequentially in 4Q, in line with the firm's revenue guidance midpoint," he wrote in a research note.

Heading into 2010

Going forward, both analysts see Q1 sales to be above-seasonal average. Typically, sales drop off in Q1 as retail takes a breather following the mad Christmas rush. And in this case, the "growth" is actually just not shrinking as much as expected.

For Q1, Broadpoint expects notebook contraction of eight percent instead of the usual 10 percent shrinkage from Q4. For the March quarter, Broadpoint forecasts revenue and GAAP EPS of $9.63B and $0.38 vs. the Street at $9.26B and $0.34.

FBR's Berger is again more restrained, projecting first quarter revenue in the range of $9.2 to $9.8 billion, better than the Street estimate of $9.25 billion. "We believe channel inventories continue to remain lean, and Intel's lead times have remained largely stable," he wrote.

This year will be marked by considerable growth for two reasons: one, companies are finally ready to start refreshing their computer systems with new hardware, and both builders and vendors need to replenish the inventories they have kept at record low levels.

Broadpoint sees the first two quarters as likely above-seasonal demand and independent of demand.

"We believe the PC food chain, with Intel and AMD being the most exposed, will benefit materially from necessary over-shipping (likely through, at least, CY1H10) as depleted inventories correct from substantial under-shipping through most of 2009. Given the severity of ODM [Original Design Manufacturer] depletion, it appears likely that growth rates for AMD and INTC are above historical levels for both March and June, regardless of a meaningful uptick in either consumer or enterprise demand," wrote Freedman.

FBR's Berger is also expecting a supply chain refresh that will be independent of how many laptops and desktops are sold. "Unsustainably low supply chain inventories to drive further 'beat and raises' and share price appreciation in 2010. From a fundamental perspective, 2010 should be a robust year for the semiconductor industry," he wrote.

FBR forecasts semiconductor revenues to grow 25 percent in 2010, following a 14 percent revenue decline in 2009 and three percent drop in 2008. "We believe chip and inventory replenishment within the supply chain will drive a better-than-seasonal revenue decline in 1Q10 and possibly 2Q10 for the semiconductor industry, and that chip shipments will more closely track end demand by the summertime," Berger wrote.

Intel reports its figures on Thursday afternoon after the close of trading on Wall Street. It will hold an earnings call with analysts at 5 pm EST to discuss the earnings. InternetNews.com will have full coverage.

Andy Patrizio is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.