Keep an Eye on Intel’s Earnings Guidance

Get ready for fourth-quarter earnings season to pick up steam in the upcoming weeks. After relatively strong third-quarter earnings, the market is anxiously waiting for the Q4 and the guidance going forward for 2007. Given the current rally, the outcome of the Q4 could go a long way in dictating where stocks will head. Expectations are high, so the Q4 earnings need to be positive, especially in the technology and small-cap areas. Companies that fail to deliver strong numbers could see setbacks for their stocks going forward.

As we move forward, watch for the Q4 earnings to begin picking up over the next several weeks. For the Q4, earnings growth is estimated at 9.9%, according to Reuters Estimates — a decline from the double-digit earnings growth in the Q3. Expectations call for single-digit earnings growth for at least the Q1 and Q2, where earnings growth is expected to falter to 7.8% in the Q2. And if we see more economic softening, earnings may suffer more.

My concern remains with the technology sector, which is leading all markets this year. The NASDAQ is up over 3%, with plenty of good news discounted in. It broke to a new five-year high of 2,499.37 on January 12, and it’s set to break 2,500. The semiconductor group will be under pressure to deliver. Bellwether Intel Corp. (NASDAQ/INTC) is set to report after the market close on January 16.

Intel is expected to make $0.25 per diluted share on average consensus revenues of $9.45 million, down from $0.40 per diluted share the prior year.

Investors want to know if a trend of underperformance is developing. Intel is losing market share to rival Advanced Micro Devices Inc. (NYSE/AMD), and this is a growing concern.

For Intel, all eyes will be on its guidance going forward and how it plans to turn its declining market share around and get the upper hand on AMD — which has faster chips. Intel is aggressively cutting its chip prices to compete. While this may work in the short term, in the longer-term, it’s all about speed. Investors must be convinced that the company’s turning around. AMD is in its path.