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Intel Roundup: Earnings, Manufacturing Lead, Nabbing Tesla Talent
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Here’s a brief recap of Intel (INTC - Free Report) earnings, questions concerning its manufacturing lead and its poaching away of Jim Keller from Tesla (TSLA - Free Report) .
Earnings
Intel’s first-quarter revenue of $16.07 billion beat the Zacks Consensus Estimate of $15.03 billion by 6.7%. Revenue included around $462 million attributable to the adoption of a new revenue recognition standard, affecting the CCG and NSG segments. Excluding this impact, revenue grew 5.5% year over year and beat our estimate by 3.9%. Management expects around half the impact to be neutralized in the second half of the year.
Intel’s diversification strategy is clearly playing out as the client business was contained at 51% of revenue, despite growing 3% on strength in notebooks, PCs and modems. The remaining 49% grew 25%, off the data centric products that Intel often sells in an integrated way but reports separately for clarity. And every part of that business (data center, IoT, memory, programmable) was up double digits with cloud adoption, communications buildouts and Intel’s product leadership being the biggest drivers.
Intel’s opportunity lies in embracing the cloud computing, AI, IoT, autonomous driving automotive and 5G trends that will boost demand for compute, storage and networking hardware, and the company does appear to be delivering the goods. So today Intel is inside Alphabet’s (GOOGL - Free Report) test autonomous driving cars, and the Amazon (AMZN - Free Report) and Microsoft (MSFT - Free Report) clouds.
Intel’s per share earnings of $0.87 beat the Zacks Consensus Estimate by 22.5%, driven mainly by operating leverage and a lower tax rate. The gross margin benefited from higher volumes and improving mix (customers preferred higher ASP products) as offset by higher costs related to still-low yields on 10nm. The company is on track to end the year at the 30% operating margin level it originally targeted for 2020.
Looking forward to the rest of the year, Intel raised the revenue, operating margin, earnings and free cash flow guide by $2.5 billion, 1 point, 30 cents and $1.5 billion, respectively while lowering the tax rate a point.
It was a classic beat and raise quarter but the push-out of 10nm volume production to sometime in 2019 likely increased investor uncertainty with a corresponding pressure on prices.
Intel Losing Manufacturing Lead?
This is the question on most investors’ minds as Intel delayed, yet again, the volume ramp of its 10nm chip while denying that there was anything at all wrong with the technology. As the company has explained and everyone already understands, it drives improved performance per watt at a higher node with successive generations of chips than the competition.
So between 14nm and 14nm++, there has been a 70% improvement in performance and power putting its 10nm chips on par with 7 nm chips from its competitors. Plus the mature process has ensured high yields and stronger margins for Intel. So it has been good for both Intel and its partners.
The part missing here is of course density, which can’t be improved without moving to a smaller node. However, since its manufacturing peers (foundries TSMC, Samsung, Globalfoundries) are on track to move to 7nm this year and next, Intel can no longer say that its manufacturing process is in the lead or even on par, meaning that it is in danger of falling behind in things like adding more features and driving costs further down for itself.
Intel does have an answer to this, which kind of explains why it’s doing what it is. And why the journey along the learning curve to 10nm volumes can make sense for the company. This is what CEO Brian Krzanich says-
“At 7 nanometers and beyond, we're really moving to a world where you're not going to look at any piece of silicon as being a single node. You're going to use what we're going to call heterogeneous techniques that allow us to use silicon for multiple nodes. So you may use cores from 7 nanometers and IP from 14 nanometers and even as far back as 22 nanometers for the parts that don't need the high performance. And we're able to put those together and make them perform and behave like a single piece of silicon in the package.”
In other words, Intel is building/acquiring/collaborating with companies like rival Advanced Micro Devices (AMD - Free Report) to bring different capabilities (CPU, GPU, memory, ASIC, programmable chips, etc.) into a highly sophisticated package so it works in unison.
There are a number of reasons why this seems like a superior strategy-
First, we are moving into an increasingly connected world, where a lot of functionality will be required in relatively small devices. Using discrete parts is going to take more space and work out to be more expensive for customers.
Second, in case of autonomous driving cars, there’s going to be a huge amount of computing, communication, storage, retrieval and other processes going on in near real time to facilitate very quick decision making. Companies with discrete parts will have to collaborate to deliver the required functionality but Intel will be on top with its solutions.
Third, big cloud and data center players like Amazon, Microsoft, Google and Facebook have increased investment in chip design that at times have felt like a threat to a company like Intel. But it could be only if Intel stuck to Moore’s law and didn’t improvise the way it’s doing now. Intel has been selling custom chips to big technology companies that its comprehensive strategy for the future could build on. So in essence, a custom package could include a design from any of these companies built to work with all the other Intel parts.
If there was any chance of weakening demand, Intel would have been tightening capacity. But that’s not what it is doing at all. For example, here’s CFO Robert Swan telling us that “both yields and output in our Dalian factory continue to ramp ahead of schedule” and that “the transition to 64L 3D NAND is improving our cost while we invest in and expand our Dalian factory.”
The only thing left is execution.
Tesla Autopilot Head Joins Intel
Here’s some more good news: Jim Keller is dropping the position of vice president of Autopilot and Low Voltage Hardware at Tesla to join Intel as its senior vice president leading the company’s silicon engineering operations. At Tesla, he was developing an AI chip for Autopilot.
Keller has 20+ years of experience in chip design on both x86 and ARM technologies having helped AMD design its Athlon and Ryzen chips and Apple (AAPL - Free Report) design its A4 and A5 chips before that. He has experience on a wide range of platforms including PCs, servers, mobile devices and cars.
"I had a great experience working at Tesla, learned a lot, and look forward to all the great technology coming from Tesla in the future. My lifelong passion has been developing the world's best silicon products," Keller said. "The world will be a very different place in the next decade as a result of where computing is headed. I am excited to join the Intel team to build the future of CPUs, GPUs, accelerators and other products for the data-centric computing era."
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
Image: Bigstock
Intel Roundup: Earnings, Manufacturing Lead, Nabbing Tesla Talent
Here’s a brief recap of Intel (INTC - Free Report) earnings, questions concerning its manufacturing lead and its poaching away of Jim Keller from Tesla (TSLA - Free Report) .
Earnings
Intel’s first-quarter revenue of $16.07 billion beat the Zacks Consensus Estimate of $15.03 billion by 6.7%. Revenue included around $462 million attributable to the adoption of a new revenue recognition standard, affecting the CCG and NSG segments. Excluding this impact, revenue grew 5.5% year over year and beat our estimate by 3.9%. Management expects around half the impact to be neutralized in the second half of the year.
Intel’s diversification strategy is clearly playing out as the client business was contained at 51% of revenue, despite growing 3% on strength in notebooks, PCs and modems. The remaining 49% grew 25%, off the data centric products that Intel often sells in an integrated way but reports separately for clarity. And every part of that business (data center, IoT, memory, programmable) was up double digits with cloud adoption, communications buildouts and Intel’s product leadership being the biggest drivers.
Intel’s opportunity lies in embracing the cloud computing, AI, IoT, autonomous driving automotive and 5G trends that will boost demand for compute, storage and networking hardware, and the company does appear to be delivering the goods. So today Intel is inside Alphabet’s (GOOGL - Free Report) test autonomous driving cars, and the Amazon (AMZN - Free Report) and Microsoft (MSFT - Free Report) clouds.
Intel’s per share earnings of $0.87 beat the Zacks Consensus Estimate by 22.5%, driven mainly by operating leverage and a lower tax rate. The gross margin benefited from higher volumes and improving mix (customers preferred higher ASP products) as offset by higher costs related to still-low yields on 10nm. The company is on track to end the year at the 30% operating margin level it originally targeted for 2020.
Looking forward to the rest of the year, Intel raised the revenue, operating margin, earnings and free cash flow guide by $2.5 billion, 1 point, 30 cents and $1.5 billion, respectively while lowering the tax rate a point.
It was a classic beat and raise quarter but the push-out of 10nm volume production to sometime in 2019 likely increased investor uncertainty with a corresponding pressure on prices.
Intel Losing Manufacturing Lead?
This is the question on most investors’ minds as Intel delayed, yet again, the volume ramp of its 10nm chip while denying that there was anything at all wrong with the technology. As the company has explained and everyone already understands, it drives improved performance per watt at a higher node with successive generations of chips than the competition.
So between 14nm and 14nm++, there has been a 70% improvement in performance and power putting its 10nm chips on par with 7 nm chips from its competitors. Plus the mature process has ensured high yields and stronger margins for Intel. So it has been good for both Intel and its partners.
The part missing here is of course density, which can’t be improved without moving to a smaller node. However, since its manufacturing peers (foundries TSMC, Samsung, Globalfoundries) are on track to move to 7nm this year and next, Intel can no longer say that its manufacturing process is in the lead or even on par, meaning that it is in danger of falling behind in things like adding more features and driving costs further down for itself.
Intel does have an answer to this, which kind of explains why it’s doing what it is. And why the journey along the learning curve to 10nm volumes can make sense for the company. This is what CEO Brian Krzanich says-
“At 7 nanometers and beyond, we're really moving to a world where you're not going to look at any piece of silicon as being a single node. You're going to use what we're going to call heterogeneous techniques that allow us to use silicon for multiple nodes. So you may use cores from 7 nanometers and IP from 14 nanometers and even as far back as 22 nanometers for the parts that don't need the high performance. And we're able to put those together and make them perform and behave like a single piece of silicon in the package.”
In other words, Intel is building/acquiring/collaborating with companies like rival Advanced Micro Devices (AMD - Free Report) to bring different capabilities (CPU, GPU, memory, ASIC, programmable chips, etc.) into a highly sophisticated package so it works in unison.
There are a number of reasons why this seems like a superior strategy-
First, we are moving into an increasingly connected world, where a lot of functionality will be required in relatively small devices. Using discrete parts is going to take more space and work out to be more expensive for customers.
Second, in case of autonomous driving cars, there’s going to be a huge amount of computing, communication, storage, retrieval and other processes going on in near real time to facilitate very quick decision making. Companies with discrete parts will have to collaborate to deliver the required functionality but Intel will be on top with its solutions.
Third, big cloud and data center players like Amazon, Microsoft, Google and Facebook have increased investment in chip design that at times have felt like a threat to a company like Intel. But it could be only if Intel stuck to Moore’s law and didn’t improvise the way it’s doing now. Intel has been selling custom chips to big technology companies that its comprehensive strategy for the future could build on. So in essence, a custom package could include a design from any of these companies built to work with all the other Intel parts.
If there was any chance of weakening demand, Intel would have been tightening capacity. But that’s not what it is doing at all. For example, here’s CFO Robert Swan telling us that “both yields and output in our Dalian factory continue to ramp ahead of schedule” and that “the transition to 64L 3D NAND is improving our cost while we invest in and expand our Dalian factory.”
The only thing left is execution.
Tesla Autopilot Head Joins Intel
Here’s some more good news: Jim Keller is dropping the position of vice president of Autopilot and Low Voltage Hardware at Tesla to join Intel as its senior vice president leading the company’s silicon engineering operations. At Tesla, he was developing an AI chip for Autopilot.
Keller has 20+ years of experience in chip design on both x86 and ARM technologies having helped AMD design its Athlon and Ryzen chips and Apple (AAPL - Free Report) design its A4 and A5 chips before that. He has experience on a wide range of platforms including PCs, servers, mobile devices and cars.
"I had a great experience working at Tesla, learned a lot, and look forward to all the great technology coming from Tesla in the future. My lifelong passion has been developing the world's best silicon products," Keller said. "The world will be a very different place in the next decade as a result of where computing is headed. I am excited to join the Intel team to build the future of CPUs, GPUs, accelerators and other products for the data-centric computing era."
Recommendations
Intel has a Zacks Rank #3 (Hold). But you can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>