21 Nov CTO Jonathan Cartu Announces – Intel (INTC) Down 15.8% Since Last Earnings Report: Can It…
It has been about a month since the last earnings report for Intel (INTC). Shares have lost about 15.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Intel due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Intel Q3 Earnings & Revenues Top Estimates
Intel reported third-quarter 2020 non-GAAP earnings of $1.11 per share, which beat the Zacks Consensus Estimate by 0.9%. However, the bottom line declined 22% from the year-ago quarter.
Revenues totaled $18.333 billion, surpassing the consensus mark by 0.7%. However, the top line fell 4% on a year-over-year basis.
Segment Revenue Details
Client Computing Group or CCG (53.7% of total revenues) represents Intel’s PC-centric business. The company bundles PCs, notebooks, 2-in-1s, tablets and other computing devices under the Client segment, which aids comparison with the PC market numbers provided by IDC and Gartner.
Revenues were up 1% on a year-over-year basis to $9.847 billion. Solid notebook demand driven by remote working and online learning trends triggered by COVID-19 contributed to the top line.
Notably, Intel is adding wafer capacity to boost PC unit volumes in a bid to meet market demand. The company expanded capacity by more than 25% in 2020 and currently has three high-volume fabs producing 10 nm products to cater to customer demands.
Moreover, the chipmaker’s third 10 nm manufacturing facility in Arizona, is now completely operational and Intel now projects to ship 30% higher 10 nm product volumes in 2020 compared with January anticipations.
Notably, Platform revenues increased 5% year over year to $8.762 billion. Adjacencies revenues declined 18% from the year-ago quarter to $1.085 billion. Notably, CCG adjacencies include modem, connected home products, wireless communications and wired connectivity.
While notebook platform volumes increased 25% year over year, desktop platform volumes declined 18%.
PC volumes grew 11% on a year-over-year basis. Further, Notebook’s average selling price (ASP) declined 7% year over year, while Desktop ASP remained flat.
During the reported quarter, the chip maker introduced 11th Gen Intel Core processors integrated with Intel Iris Xe graphics (formerly dubbed “Tiger Lake”). Management noted that more than 150 designs from major PC makers are in development, with 100 designs set to hit shelves by the end of 2020. Markedly, the new processors are based on Intel’s 10 nm SuperFin process technology, which offers performance enhancement when compared to a full-node transition.
Intel anticipates strong momentum in its 11th Gen Intel Core processors to aid it in gaining market share.
Data Center Group or DCG (32.2%) revenues declined 7% year over year to $5.905 billion on sluggish data center demand across enterprise and government end-markets. Nevertheless, solid demand from Cloud service providers (CSP) limited the decline.
Platform revenues were down 11% year over year to $5.151 billion. Adjacencies rose 34% from the year-ago quarter to $754 million on solid uptake of 5G networking solutions.
DCG Platform unit volumes were up 4% year over year, while ASP declined 15% owing to higher networking SoC volume, and weaker enterprise and government volume.
CSP revenues advanced 15% year over year. Further, revenues from Communication service provider increased 4%. Revenues from Enterprise & Government fell 47%.
Internet of Things Group or IOTG revenues declined 33% from the year-ago quarter to $677 million. The coronavirus crisis-induced weakness in retail, vison and industrial end markets led to year-over-year decline.
Mobileye revenues improved 2% on a year-over-year basis to $234 million, courtesy of increasing proliferation of ADAS and ramp of new IQ programs and improvement in automotive production volumes.
Total Internet of Things revenues (5% of total revenues), comprising IOTG and Mobileye, declined 26.2% year over year to $911 million.
Non-Volatile Memory Solutions Group or NSG (6.3%) revenues declined 11% year over year to $1.153 billion on Optane bit decline. However, improvement in NAND pricing trends, which led to higher ASPs, limited the decline.
Notably, during the fourth quarter, Intel announced that it is selling its NAND memory and storage operations to South Korea-based SK hynix for $9 billion.
The sale includes Intel’s NAND component and wafer business, NAND solid state drives (SSD) business but excludes the chipmaker’s Optane modules business operations. The deal also includes Intel’s Dalian NAND memory manufacturing facility located in China.
The NAND business forms a part of Intel’s Non-Volatile memory solutions group (NSG). Selling of non-core operations will help Intel focus on its primary CPU memory chips business. Intel is planning to utilize the proceeds from the sale to augment its business prospects in the fast-emerging markets of 5G networking, Artificial Intelligence (AI), and autonomous edge computing verticals.
Programmable Solutions Group or PSG (2.2%) revenues slumped 19% from the year-ago quarter to $411 million, due to sluggish demand across communications and embedded segments. However, strength across cloud vertical limited decline.
Intel also has a residual segment, All Other (0.6%), which includes results of operations from other adjustments. The segment reported revenues of $106 million, up 58.2% year over year.
Notably, DCG, IOTG, NSG, PSG, Mobileye and All Other business units form the crux of Intel’s data-centric business model. Revenues from the data-centric businesses were $8.486 billion (46.3% of total revenues), down 10% collectively on a year-over-year basis.
Non-GAAP gross margin in the reported quarter was 54.8%, which contracted 560 basis points (bps) on a year-over-year basis. Management had anticipated non-GAAP gross margin to be 57%.
Decline in data center ASPs, on unfavorable sales mix led to lower-than-expected gross margin levels. The shift of product mix from higher-margined enterprise and government end-markets to cloud and lower PC client ASPs, led by rise in demand for consumer and education PCs, resulted in the downside.
Non-GAAP Research & development (R&D) expenses, and…