Intel INTC will kick off technology earnings on Jan 14 so here is a quick take on what we might expect.

The numbers on Zacks.com aren’t too bad, especially when you consider the company’s average positive surprise of 8.3% in the last four quarters and PEG of 1.51, which trails the 3.76 for the industry.

But still, its Earnings ESP (our proprietary model to determine positive surprises) of 0.00% and Zacks Rank #3 (Hold) continue to say that surprise prediction is difficult.

Management’s expectations for the upcoming quarter weren’t too ambitious either, but some may call it conservative since Intel rarely misses:

-Revenue of around $14.8 billion (+/-$500 million), up 2.3% sequentially and 0.5% from the Dec quarter of 2014

-Gross margin of around 62% (+/-2 percentage points)

- R&D and MG&A expenses of around $5.0 billion

-Restructuring charges of around $25 million

- Depreciation of around $1.9 billion and intangibles amortization of around $70 million

- Other income/expense and equity investments won’t have any impact on the quarter

-Tax rate 25% for the year

-Capex for the year was lowered by 0.4 billion to $7.3 billion

Major Drivers

Intel is quite disciplined as far as costs are concerned, so this is not likely to grow into any more of a driver of quarterly results than it has been in the past.

While the company did make some acquisitions last year (Altera being the most significant), it is unlikely to let these acquisitions impact its profitability too much. 

Gross margin, on the other hand, is more of a factor as the company ramped up new production lines last quarter. Margins will tend to go up as the process matures. An offsetting factor is the product subsidy it is offering tablet makers. Tablets are a shrinking market as we all know from market research firms like IDC and Gartner. Intel’s policy of subsidizing its chips for share in this shrinking market and updates on its new SoFIA chips will be things to watch out for.

Moving on to revenues:

The biggest gripe with Intel’s business is the PC market, since the company still generates the bulk of its revenue here. The first quarter may not be too different directionally for this business, but its own new products (so improving mix) and enterprise adoption of Windows 10 are some factors that could lift its fortunes as the year progresses.

Similar to the client business, the data center business has also been impacted by the slowdown in enterprise spending with cloud being something of an offset. FX is also likely a factor here. But the product line continues to expand with silicon photonics and FPGAs adding to thecloud and enterprise business this year.

Intel, along with Netflix NFLX fairly stole the CES show last week as the two companies had the most to say. Intel for its part talked a lot about new IoT products that would ship with its Curie, Quark and other tech as well as an the fact that its RealSense technology has now found its way into drones. So look for bikes, clothes and what-have-you with Intel inside. Notwithstanding the excitement, there’s not much to say for quarter one, which should be seasonally down.

Memory is something really hard to comment on since management doesn’t break it out clearly. But expect growth here in line with trends in the last few quarters and new products like 3D XPoint some time in the future (wish management would comment on the timeline).

So That’s It…

Intel’s Zacks Rank is likely to hold post the earnings announcement and hopefully there wont be any more unpleasant surprises for us. But who knows? For a detailed analysis of the earnings announcement, keep an eye on the earnings section on Zacks.com.

And in the meantime, if you’re looking for technology picks going into the earnings season, here are a few that our model says will report a positive surprise:

Angies List ANGI, Zacks Rank #1, Earnings ESP 7.41%

Microstrategy MSTR, Zacks Rank #1, Earnings ESP 3.46%

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