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Intel (INTC) Beats on Q2 Earnings & Revenues, Raises View
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Intel Corp (INTC - Free Report) delivered second-quarter 2018 non-GAAP earnings of $1.04 per share, beating the Zacks Consensus Estimate of 99 cents. The figure surged 44.4% from the year-ago quarter and 19.5% sequentially.
Strong earnings growth was driven by better-than-expected top-line performance, operating margin expansion and lower effective tax-rate.
Revenues totaled $16.96 billion, up 14.9% year over year and 5.6% quarter over quarter. The figure marginally surpassed the Zacks Consensus Estimate of $16.91 billion.
The year-over-year improvement came on the back of impressive results from the Data Center Group (“DCG”), Internet-of-Things Group (“IOTG”), Non-Volatile Memory Solutions (“NSG”) and Programmable Solutions Group (“PSG”). These segments along with MobilEye form the crux of Intel’s data-centric business model, which contributed almost 50% of total revenues.
Management stated that data-centric businesses were up 26% collectively, with each business individually growing in double digits.
Intel’s stock has returned 4.4% over the past six months, outperforming the 2.6% rally of the industry.
Segment Revenue Details
Client Computing Group or CCG (51.5% of revenues) — Intel 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 increased 6.3% on a year-over-year basis and 6.2% sequentially to $8.73 billion. Strength in notebook (up 6%), desktop (up 6%) and modem was reflected in year-over-year growth.
Management noted strength in the commercial and gaming business. On a year-over-year basis, PC volumes were down 1%. Notebook ASP inched up 2%, while Desktop ASP increased 13%.
The company launched several new 8th Gen Intel Core processors during the quarter, which included Intel Core i9 processor for laptops, IntelCore vPro processors for business, and Intel Core i7-8086K limited-edition processor for gaming.
Management stated that it continues to make progress toward 10-nanometer (nm) process. Volume production is now expected to happen in 2019, instead of the prior expectation of second-half 2018, primarily due to yield issues.
Data Center Group or DCG (32.7% of revenues) — Revenues surged 26.9% year over year and 6.1% sequentially to $5.55 billion. Platform volumes increased 14%, while platform ASP was up 11% on a year-over-year basis. Growth was broad-based with strong demand for high-performance products (including Xeon Scalable) driving ASPs.
Per Intel, the Cloud business revenues, largest Data Center segment, advanced 41%. Enterprise & Government was up 10%. Commercial service provider revenues grew 30%.
Intel’s strategy of expanding TAM beyond CPU to adjacent product lines like silicon photonics, fabric, network ASICs, and 3D XPoint memory is bearing fruit.
Internet of Things Group or IOTG (5.2% of revenues) — Revenues jumped 22.2% from the year-ago quarter and 4.8% quarter over quarter to $840 million. Growth was driven by strength in retail and industrial applications.
The company anticipates Wind River divestiture to negatively impact the core IOTG segment revenues of approximately $150 million in the second half of 2018.
Non-Volatile Memory Solutions Group or NSG (6.4% of revenues) — Revenues jumped 23.5% year over year and 3.8% sequentially to $1.08 billion on the back of strong demand for data center SSD solutions.
Intel offers Optane SSDs for clients and 3D NAND technologies, which helps in driving innovation in solid-state drives (SSDs) and other memory products.
Programmable Solutions Group or PSG (3% of revenues) — The Altera business is now the Programmable Solutions Group, which increased 18% from the year-ago quarter and 3.8% sequentially to $517 million.
Strength in data center and embedded products drove top-line growth. PSG's data center segment surged roughly 140% from the year-ago quarter. Management stated that revenues from advanced FPGA products (28, 20 and 14-nm) grew approximately 70% from the year-ago quarter.
Intel also has a residual segment, which now includes results of operations from MobilEye, New Technology Group and other adjustments. The segment reported revenues of $209 million up 45% year over year but down 10.7% sequentially.
Mobileye witnessed robust double-digit growth during the quarter and was up 37% year over year on the back of increasing ADAS adoption.
The company has started testing autonomous vehicles in Israel and is anticipated to expand trials in other geographies soon. Further, it recently collaborated with Mapbox, a mapping startup. This move bodes well for the company and should help it to stay ahead of competition from Qualcomm (QCOM - Free Report) and NVIDIA (NVDA - Free Report) .
Mobileye’s Responsibility Sensitive Safety (“RSS”) software and EyeQ5 technology was recently selected for Baidu’s Apollo self-driving platform.
Operating Details
The non-GAAP gross margin for the quarter was 63%, which remained flat on a year-over-year basis and expanded 70 basis points (bps) sequentially.
Research & development (R&D) expenses and marketing, general & administrative (MG&A) expenses decreased 2% each on a year-over-year basis.
As percentage of revenues, R&D and MG&A declined 220 bps and 230 bps on a year-over-year basis, respectively.
Intel stated that total spending declined 4.6% in the reported quarter. The company achieved its target of total spending of 30% of revenues in January 2018, two years ahead of its original target of 2020.
Segment operating margin was 33%, up 470 bps year over year and 520 bps sequentially.
CCG operating margin increased to 37.1% from 36.8% in the year-ago quarter. The increase can be attributed to strong product mix and higher ASPs on the back of customer preference. On a sequential basis, CCG operating margin expanded 310 bps.
DCG operating margin was 49%, significantly up from 37.9% delivered in the year-ago quarter. Operating margin was affected by increased technology development costs and higher spending on AI and adjacency businesses. Sequentially, segment margin expanded 70 bps.
IOTG operating margin was 27.6% up from 19.3% in the year-ago quarter. Sequentially, segment operating margin expanded 60 bps.
NSG group reported a loss of $65 million as compared with a loss of $110 million in the year-ago quarter. Notably, the segment posted a loss of $81 million in the previous quarter. The narrower year-over-year loss was primarily due to strong gigabyte demand and unit cost reductions, which partially offset lower ASPs.
Intel stated that the transition to 64 layers 3D NAND is improving cost.
PSG reported operating income of $101 million, up 4.1% both year over year and sequentially.
Balance Sheet
As of Jun 30, 2018, cash, marketable securities and fixed-income trading asset balance was almost $12.22 billion as compared with $16.20 billion in the previous quarter.
Intel currently has $24.63 billion in long-term debt as well as $3.51 billion in short-term debt, which has led to a net-debt balance of $15.92 billion.
During the reported quarter, Intel generated approximately $7.4 billion in cash from operations, paid dividends worth $1.4 billion and bought back shares worth $3.9 billion.
Guidance
Intel guided third-quarter 2018 revenues of around $18.1 billion (+/-$500 million), up 12% year over year on the back of continued strengthen in data-centric business. The projected figure is better than the Zacks Consensus Estimate of $17.60 billion.
Gross margin is expected to decline almost 1 percentage points on higher 10-nm related costs and adjacency ramp. Spending is anticipated to decline 1 percentage point.
Non-GAAP operating margin is projected to be approximately 34%.
Earnings are anticipated to be $1.15 per share (+/- 5 cents) per share, up 14% on a year-over-year basis. The Zacks Consensus Estimate is currently pegged at $1.08 per share.
For 2018, management expects revenues of almost $69.5 billion (+/- $1 billion), better than the Zacks Consensus Estimate of $68.63 billion and up $2 billion from previous expectation.
Gross margin is expected to be down slightly as compared to our flat guidance given previously on broad-based business strength.
Intel now envisions direct spending to be approximately 30% (down 300 bps over 2017).
Non-GAAP operating margin is projected to be approximately 32%, up from previous guidance of roughly 31%.
Earnings are now anticipated to be $4.15 (+/- 5%) per share, up from previous guidance of $3.85 and better than the Zacks Consensus Estimate of $4.03.
For the data-center group, management now expects revenues to be approximately 20%, up from previous guidance to grow in the high-single digits. The company now projects operating margin to be roughly 32%, up 1 point from the previous guidance.
Intel now expects a full-year tax rate of 12.5%, 0.5 point down compared with previous guidance.
Full-year capex is expected to be $15 billion (+/-$500 million), up from previous guidance of $14.5 billion. Net capital deployed, which is capital spending offset by expected prepaid supply agreements in Intel’s memory business, is now projected to be $13 billion (+/-$500 million), up from $12.5 billion projected earlier.
Free cash flow is now projected to be $15 billion (+/-$500 million), up from previous guidance of $14.5 billion.
Zacks Rank & Other Stocks to Consider
Currently, Intel carries a Zacks Rank #1 (Strong Buy).
Long-term earnings growth rate for Microsoft is currently pegged at 12.3%.
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Intel (INTC) Beats on Q2 Earnings & Revenues, Raises View
Intel Corp (INTC - Free Report) delivered second-quarter 2018 non-GAAP earnings of $1.04 per share, beating the Zacks Consensus Estimate of 99 cents. The figure surged 44.4% from the year-ago quarter and 19.5% sequentially.
Strong earnings growth was driven by better-than-expected top-line performance, operating margin expansion and lower effective tax-rate.
Revenues totaled $16.96 billion, up 14.9% year over year and 5.6% quarter over quarter. The figure marginally surpassed the Zacks Consensus Estimate of $16.91 billion.
The year-over-year improvement came on the back of impressive results from the Data Center Group (“DCG”), Internet-of-Things Group (“IOTG”), Non-Volatile Memory Solutions (“NSG”) and Programmable Solutions Group (“PSG”). These segments along with MobilEye form the crux of Intel’s data-centric business model, which contributed almost 50% of total revenues.
Management stated that data-centric businesses were up 26% collectively, with each business individually growing in double digits.
Intel’s stock has returned 4.4% over the past six months, outperforming the 2.6% rally of the industry.
Segment Revenue Details
Client Computing Group or CCG (51.5% of revenues) — Intel 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 increased 6.3% on a year-over-year basis and 6.2% sequentially to $8.73 billion. Strength in notebook (up 6%), desktop (up 6%) and modem was reflected in year-over-year growth.
Management noted strength in the commercial and gaming business. On a year-over-year basis, PC volumes were down 1%. Notebook ASP inched up 2%, while Desktop ASP increased 13%.
The company launched several new 8th Gen Intel Core processors during the quarter, which included Intel Core i9 processor for laptops, IntelCore vPro processors for business, and Intel Core i7-8086K limited-edition processor for gaming.
Management stated that it continues to make progress toward 10-nanometer (nm) process. Volume production is now expected to happen in 2019, instead of the prior expectation of second-half 2018, primarily due to yield issues.
Data Center Group or DCG (32.7% of revenues) — Revenues surged 26.9% year over year and 6.1% sequentially to $5.55 billion. Platform volumes increased 14%, while platform ASP was up 11% on a year-over-year basis. Growth was broad-based with strong demand for high-performance products (including Xeon Scalable) driving ASPs.
Per Intel, the Cloud business revenues, largest Data Center segment, advanced 41%. Enterprise & Government was up 10%. Commercial service provider revenues grew 30%.
Intel’s strategy of expanding TAM beyond CPU to adjacent product lines like silicon photonics, fabric, network ASICs, and 3D XPoint memory is bearing fruit.
Internet of Things Group or IOTG (5.2% of revenues) — Revenues jumped 22.2% from the year-ago quarter and 4.8% quarter over quarter to $840 million. Growth was driven by strength in retail and industrial applications.
The company anticipates Wind River divestiture to negatively impact the core IOTG segment revenues of approximately $150 million in the second half of 2018.
Non-Volatile Memory Solutions Group or NSG (6.4% of revenues) — Revenues jumped 23.5% year over year and 3.8% sequentially to $1.08 billion on the back of strong demand for data center SSD solutions.
Intel offers Optane SSDs for clients and 3D NAND technologies, which helps in driving innovation in solid-state drives (SSDs) and other memory products.
Programmable Solutions Group or PSG (3% of revenues) — The Altera business is now the Programmable Solutions Group, which increased 18% from the year-ago quarter and 3.8% sequentially to $517 million.
Strength in data center and embedded products drove top-line growth. PSG's data center segment surged roughly 140% from the year-ago quarter. Management stated that revenues from advanced FPGA products (28, 20 and 14-nm) grew approximately 70% from the year-ago quarter.
Intel also has a residual segment, which now includes results of operations from MobilEye, New Technology Group and other adjustments. The segment reported revenues of $209 million up 45% year over year but down 10.7% sequentially.
Mobileye witnessed robust double-digit growth during the quarter and was up 37% year over year on the back of increasing ADAS adoption.
The company has started testing autonomous vehicles in Israel and is anticipated to expand trials in other geographies soon. Further, it recently collaborated with Mapbox, a mapping startup. This move bodes well for the company and should help it to stay ahead of competition from Qualcomm (QCOM - Free Report) and NVIDIA (NVDA - Free Report) .
Mobileye’s Responsibility Sensitive Safety (“RSS”) software and EyeQ5 technology was recently selected for Baidu’s Apollo self-driving platform.
Operating Details
The non-GAAP gross margin for the quarter was 63%, which remained flat on a year-over-year basis and expanded 70 basis points (bps) sequentially.
Research & development (R&D) expenses and marketing, general & administrative (MG&A) expenses decreased 2% each on a year-over-year basis.
As percentage of revenues, R&D and MG&A declined 220 bps and 230 bps on a year-over-year basis, respectively.
Intel stated that total spending declined 4.6% in the reported quarter. The company achieved its target of total spending of 30% of revenues in January 2018, two years ahead of its original target of 2020.
Segment operating margin was 33%, up 470 bps year over year and 520 bps sequentially.
CCG operating margin increased to 37.1% from 36.8% in the year-ago quarter. The increase can be attributed to strong product mix and higher ASPs on the back of customer preference. On a sequential basis, CCG operating margin expanded 310 bps.
DCG operating margin was 49%, significantly up from 37.9% delivered in the year-ago quarter. Operating margin was affected by increased technology development costs and higher spending on AI and adjacency businesses. Sequentially, segment margin expanded 70 bps.
IOTG operating margin was 27.6% up from 19.3% in the year-ago quarter. Sequentially, segment operating margin expanded 60 bps.
NSG group reported a loss of $65 million as compared with a loss of $110 million in the year-ago quarter. Notably, the segment posted a loss of $81 million in the previous quarter. The narrower year-over-year loss was primarily due to strong gigabyte demand and unit cost reductions, which partially offset lower ASPs.
Intel stated that the transition to 64 layers 3D NAND is improving cost.
PSG reported operating income of $101 million, up 4.1% both year over year and sequentially.
Balance Sheet
As of Jun 30, 2018, cash, marketable securities and fixed-income trading asset balance was almost $12.22 billion as compared with $16.20 billion in the previous quarter.
Intel currently has $24.63 billion in long-term debt as well as $3.51 billion in short-term debt, which has led to a net-debt balance of $15.92 billion.
During the reported quarter, Intel generated approximately $7.4 billion in cash from operations, paid dividends worth $1.4 billion and bought back shares worth $3.9 billion.
Guidance
Intel guided third-quarter 2018 revenues of around $18.1 billion (+/-$500 million), up 12% year over year on the back of continued strengthen in data-centric business. The projected figure is better than the Zacks Consensus Estimate of $17.60 billion.
Gross margin is expected to decline almost 1 percentage points on higher 10-nm related costs and adjacency ramp. Spending is anticipated to decline 1 percentage point.
Non-GAAP operating margin is projected to be approximately 34%.
Earnings are anticipated to be $1.15 per share (+/- 5 cents) per share, up 14% on a year-over-year basis. The Zacks Consensus Estimate is currently pegged at $1.08 per share.
For 2018, management expects revenues of almost $69.5 billion (+/- $1 billion), better than the Zacks Consensus Estimate of $68.63 billion and up $2 billion from previous expectation.
Gross margin is expected to be down slightly as compared to our flat guidance given previously on broad-based business strength.
Intel now envisions direct spending to be approximately 30% (down 300 bps over 2017).
Non-GAAP operating margin is projected to be approximately 32%, up from previous guidance of roughly 31%.
Earnings are now anticipated to be $4.15 (+/- 5%) per share, up from previous guidance of $3.85 and better than the Zacks Consensus Estimate of $4.03.
For the data-center group, management now expects revenues to be approximately 20%, up from previous guidance to grow in the high-single digits. The company now projects operating margin to be roughly 32%, up 1 point from the previous guidance.
Intel now expects a full-year tax rate of 12.5%, 0.5 point down compared with previous guidance.
Full-year capex is expected to be $15 billion (+/-$500 million), up from previous guidance of $14.5 billion. Net capital deployed, which is capital spending offset by expected prepaid supply agreements in Intel’s memory business, is now projected to be $13 billion (+/-$500 million), up from $12.5 billion projected earlier.
Free cash flow is now projected to be $15 billion (+/-$500 million), up from previous guidance of $14.5 billion.
Zacks Rank & Other Stocks to Consider
Currently, Intel carries a Zacks Rank #1 (Strong Buy).
Microsoft Corporation (MSFT - Free Report) is a stock worth considering in the same sector, sporting the same rank as Intel. You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Microsoft is currently pegged at 12.3%.
5 Medical Stocks to Buy Now
Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.
New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.
Click here to see the 5 stocks >>