Intel Corporation (INTC) Earnings Preview: Can the Chip Giant's Rally Continue?

Following a couple rough years, shares of semiconductor giant Intel have soared an impressive 39% over the past 12 months.

Source: Intel.

After badly lagging the market for much of 2012-13, several key issues that had previously hampered Intel stock seem to have dissipated. For starters, the PC market, although by no means exhibiting envious growth, is no longer imploding. Likewise, Intel has also made significant progress in rolling out its new suite of mobile chips that offer the promise of a foothold for the business in the post-PC era.

Investors will get their chance to check in on the status of Intel's turnaround on Tuesday, when the company issues quarterly earnings after market close. Here's what to look for.

Can the turnaround keep going?
At first glance, the analyst community's expectations for Intel's earnings report largely reflect the conventional wisdom surrounding the stock, namely moderate improvement. Here are the consensus analyst projections for Intel's top and bottom lines in the third quarter.

Source: Yahoo! Finance. 

As was the case last quarter, Intel's anticipated high single-digit to low double-digit performance probably has as much to do with extremely easy comps versus the same quarter last year as with better than expected performance in its core businesses. In last year's third quarter, Intel delivered anemic sales and profit performance of +0.2% and -0.7% respectively. That's not exactly a high bar to clear, but an industrywide trend should also give investors some comfort heading into the Intel earnings report.

Wind in Intel's sails
Try as it might to diversify, Intel's fortunes remains largely anchored to the overall performance of the PC market. In 2013, Intel's PC client group segment produced roughly 63% of its revenue and effectively the same percentage of its operating profit. That has been an absolutely excruciating position to be in over the past several years; the global PC market declined 9.8%  last year, according to researcher IDC. Heading into 2014, few expected better. IDC projected 2014's PC market contraction to be an only moderately less depressing -6%. However, that simply hasn't been the case as the year progressed.

Source: IDC Worldwide Quarterly PC Tracker.

As you can see, the PC market has proven more resilient than imagined, although by no means robust. However, these less painful declines have given Intel the backdrop needed to post reasonably strong numbers. In the last two quarters in which market estimates have badly overstated the actual PC market's performance, Intel has also exceeded expectations.

This is by no means a given, but it's hard to overlook what appears to be an unsurprising trend between the PC market's resiliency and Intel's cheery quarterly performances. This is by no means gospel creed and could certainly not be the case in Intel's upcoming report. However, as a company that is largely levered to the PC market, there's also a reasonable logical basis for thinking things might turn out well for Intel.

Intel remains very much a company in transition. As the PC market continues to slide into maturity, Intel has worked tirelessly to expand its chip portfolio to encompass smartphone and tablet semiconductors. This has been a slow process and could remain muted in the years to come, especially with the tablet market not necessarily proving the high-growth silver bullet Intel might have hoped. While it seems a case exists for another strong report from Intel, investors might be wise to view the chip giant with a healthy dose of skepticism given all the uncertainty surrounding it.