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Intel (INTC - Free Report) reported third-quarter 2019 non-GAAP earnings of $1.42 per share, which beat the Zacks Consensus Estimate by 14.5%. The figure improved 1.4% from the year-ago quarter and 34% sequentially.
Year-over-year earnings growth can be attributed to improvement in revenues, lower share count on account of aggressive share repurchase, and lower tax rate.
Revenues totaled $19.19 billion, beating the Zacks Consensus Estimate by 6.4% and surging 16.3% on a quarter-over-quarter basis. However, revenues remained flat on year-over-year basis. Growth in data-centric business offset the decline in PC-centric business.
Shares of Intel are up around 3.2% in the pre-market on better-than-expected results and optimism regarding business momentum to continue through the remainder of 2019 and tailwinds from “trade-related demand pull-ins.”
Notably, shares of Intel have gained 13.5% year to date, compared with industry’s rally of 25.4%.
Segment Revenue Details
Client Computing Group or CCG (50.6% of total revenues) — Intel’s PC-centric business is represented by this segment. 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 down 5.1% on a year-over-year basis to $9.709 billion. The decline can primarily be attributed to lower platform volumes. Notably, Platform revenues declined 7% year over year. Modem/Adjacencies improved 10% on robust demand for connectivity solutions and modems.
Management also noted strength in the commercial PC business driven by increased demand for higher performance products. However, notebook platform volumes declined 10% year over year, while desktop platform volumes fell 11%.
Moreover, PC units declined 10% on a year-over-year basis. Meanwhile, Notebook ASP and Desktop ASP increased 4% and 3%, respectively.
The company also noted growing implementation of 10nm-based Ice Lake PC processor among PC manufacturers. Notably, Intel shipped 18 new Ice Lake-based system designs to date, with 30 designs slated to roll out in the days ahead.
The chipmaker also unveiled new 10th Gen Intel Core mobile PC processors (dubbed "Comet Lake"). Moreover, the company rolled out new Xeon W and X-Series processors for high-end desktop market and workstations.
Data Center Group or DCG (33.3%) — Revenues improved almost 4% year over year to $6.383 billion. Platform revenues were up 3%. Adjacencies improved 12% on robust adoption of connectivity solutions.
DCG Platform unit volumes were down 6% year over year, while ASP was up 9%.
Growth was broad-based with strong demand for high-performance products, including Xeon Scalable.
Per Intel, the cloud service provider (CSP) revenues improved 3%. Moreover, revenues from Enterprise & Government inched up 1% from the year-ago quarter on improved China demand. Further, revenues from Communication service provider increased 11% year over year, driven by adoption of IA-based solutions. Management believes “trade-related demand pull-ins” aided third-quarter performance.
Intel Corporation Price, Consensus and EPS Surprise
Management is elated on growing clout of latest high performance Cascade Lake family of Xeon processors integrated with deep learning (DL) tools to accelerate AI processes. Further, the processors are integrated with Intel’s Optane DC Persistent Memory solution, which is witnessing rapid adoption.
In the reported quarter, major cloud vendors, including Amazon Web Services, Alibaba (BABA - Free Report) and Google, utilized Cascade Lake family of Xeon processors to deploy complex instances. Moreover, companies like TU Darmstadt and BP opted for 9200 series of highest performance Xeon Scalable platform, to deploy complex workloads.
In the third quarter, Intel’s Optane DC Persistent Memory solution was selected by Oracle to power its latest Exadata platform.
Internet of Things Group or IOTG (5.2%) — Revenues improved 9.4% from the year-ago quarter to $1.005 billion. Growth was driven by strength in transportation and retail applications.
Mobileye revenues (1.2%) of $229 million were up 19.9% on a year-over-year basis primarily driven by growing proliferation of ADAS and new design wins. Mobileye garnered six new design wins in the reported quarter.
Excluding Wind River, which the company divested in second-quarter 2018, IoT businesses, comprising IOTG and Mobileye revenues, are up 18% on a year-to-date basis.
Non-Volatile Memory Solutions Group or NSG (6.7%) — Revenues improved 19.3% year over year to $1.29 billion on momentum in bit growth. However, decline in NAND pricing limited growth.
Programmable Solutions Group or PSG (2.6%) — Revenues improved 2.2% from the year-ago quarter to $507 million on sturdy wireless business. However, weakness in Cloud & Enterprise demand limited growth.
In the reported quarter, Intel shipped the first 10nm process nodes-based Agilex FPGAs.
Intel also has a residual segment, — All Other (0.3%) — which includes results of operations from other adjustments. The segment reported revenues of $67 million, down almost 35% 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 data-centric business came in at $9.481 billion (49.4% of total revenues), up 6.2% collectively on a year-over-year basis.
Non-GAAP gross margin for the second quarter was 60.4%, contracting 550 bps on a year-over-year basis. Management noted that absence of an anticipated grant pertaining to NAND factory, and better-than-expected NAND revenues had “mixed effects,” which could not be offset by growth DCG revenues.
Non-GAAP research & development (R&D) expenses and marketing, general & administrative (MG&A) expenses declined 7% from the year-ago quarter to $4.7 billion.
Non-GAAP operating margin for the quarter was 35.9%, which contracted almost 380 bps on a year-over-year basis. Management noted that costs pertaining to 10-nm ramp, decline in NAND pricing and lower platform revenues impacted margins negatively. Although tight spending measures and strength in server and client ASPs acted as tailwinds, these factors were unable to mitigate the decline.
Segment Operating Margin Details
Segment operating margin was 33.6%, contracting 470 bps on a year-over-year basis.
CCG operating margin of 44.3% remained flat compared with the year-ago quarter. Decline in CCG revenues limited margin expansion amid reduction in spending driven by exit from 5G smartphone modem business.
DCG operating margin was 48.8%, contracting 140 bps from the year-ago figure.
IOTG operating margin was 30.7%, which contracted 420 bps from the year-ago quarter. IOTG product mix including lower margin products led to 4% decline in operating margin in the quarter.
Mobileye operating income came in at $67 million, up 28.8% year over year.
NSG group reported operating loss of $499 million compared with $160 million operating income in the year-ago quarter, primarily owing to “one-time impacts” which include absence of anticipated grant pertaining to NAND factory.
PSG operating income of $92 million declined 13.2% from the year-ago quarter, primarily owing to unfavorable product mix.
All Other segment reported loss of $942 million compared with a loss of $904 million reported year-ago quarter.
Balance Sheet
As of Sep 28, 2019, cash and cash equivalents, short-term investments and fixed-income trading asset balance was $12.025 billion compared with $11.944 billion in the previous quarter.
The company ended the reported quarter with $23.707 billion in long-term debt and $5.2 billion in short-term debt, which has led to a total-debt balance of $28.907 billion, compared with $28.815 billion total debt in the previous quarter.
Intel noted that it has generated $11.71 billion in free cash flow on a year-to-date basis. The company reported $10.7 billion in cash from operations in the third quarter.
In the third quarter, the company returned approximately $5.9 billion to shareholders, which includes dividends worth $1.4 billion and repurchase of 92 million shares worth $4.5 billion.
Q4 View Holds Promise
Intel guided fourth-quarter 2019 revenues of around $19.2 billion. The Zacks Consensus Estimate is currently pegged at $18.83 billion.
Non-GAAP operating margin is anticipated to be approximately 33.5%.
PC centric part of the business is anticipated to be flat to marginally decline year over year. Meanwhile, NAND pricing growth and recovery in cloud are anticipated to drive Data-centric business up by 6-8%.
Intel is increasing investment in 5G. The company anticipates sale of IMFT facility to Micron (MU - Free Report) and 5G smartphone business to Apple (AAPL - Free Report) to conclude in the fourth quarter.
Non-GAAP earnings are anticipated to be $1.24 per share. The Zacks Consensus Estimate is currently pegged at $1.20.
Impressive Guidance for 2019
Intel expects to sustain the third-quarter momentum in the fourth quarter. For fiscal 2019, management now expects revenues of $71 billion compared with the previously guided figure of $69.5 billion. The Zacks Consensus Estimate is currently pegged at $69.41 billion.
Gross margin is expected to be approximately 60%, unchanged from the previous guidance due to transition costs related to 10 nm technology and inventory-based adjustments.
Non-GAAP operating margin is now projected to be 32.5%, compared with the previously guided figure of 32%.
Non-GAAP earnings are anticipated to be $4.60 per share compared with $4.40 expected earlier. The Zacks Consensus Estimate is pegged at $4.38.
The company now projects full-year capital expenditure at $16 billion, compared with prior guided figure of $15.5 billion.
Free cash flow is now anticipated at $16 billion for the full year 2019, compared with previously guided figure of $15 billion.
Intel expects to repurchase roughly 20 billion shares over upcoming 15-18 months time period.
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Intel (INTC) Beats on Q3 Earnings & Revenues, Hikes '19 View
Intel (INTC - Free Report) reported third-quarter 2019 non-GAAP earnings of $1.42 per share, which beat the Zacks Consensus Estimate by 14.5%. The figure improved 1.4% from the year-ago quarter and 34% sequentially.
Year-over-year earnings growth can be attributed to improvement in revenues, lower share count on account of aggressive share repurchase, and lower tax rate.
Revenues totaled $19.19 billion, beating the Zacks Consensus Estimate by 6.4% and surging 16.3% on a quarter-over-quarter basis. However, revenues remained flat on year-over-year basis. Growth in data-centric business offset the decline in PC-centric business.
Shares of Intel are up around 3.2% in the pre-market on better-than-expected results and optimism regarding business momentum to continue through the remainder of 2019 and tailwinds from “trade-related demand pull-ins.”
Notably, shares of Intel have gained 13.5% year to date, compared with industry’s rally of 25.4%.
Segment Revenue Details
Client Computing Group or CCG (50.6% of total revenues) — Intel’s PC-centric business is represented by this segment. 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 down 5.1% on a year-over-year basis to $9.709 billion. The decline can primarily be attributed to lower platform volumes. Notably, Platform revenues declined 7% year over year. Modem/Adjacencies improved 10% on robust demand for connectivity solutions and modems.
Management also noted strength in the commercial PC business driven by increased demand for higher performance products. However, notebook platform volumes declined 10% year over year, while desktop platform volumes fell 11%.
Moreover, PC units declined 10% on a year-over-year basis. Meanwhile, Notebook ASP and Desktop ASP increased 4% and 3%, respectively.
The company also noted growing implementation of 10nm-based Ice Lake PC processor among PC manufacturers. Notably, Intel shipped 18 new Ice Lake-based system designs to date, with 30 designs slated to roll out in the days ahead.
The chipmaker also unveiled new 10th Gen Intel Core mobile PC processors (dubbed "Comet Lake"). Moreover, the company rolled out new Xeon W and X-Series processors for high-end desktop market and workstations.
Data Center Group or DCG (33.3%) — Revenues improved almost 4% year over year to $6.383 billion. Platform revenues were up 3%. Adjacencies improved 12% on robust adoption of connectivity solutions.
DCG Platform unit volumes were down 6% year over year, while ASP was up 9%.
Growth was broad-based with strong demand for high-performance products, including Xeon Scalable.
Per Intel, the cloud service provider (CSP) revenues improved 3%. Moreover, revenues from Enterprise & Government inched up 1% from the year-ago quarter on improved China demand. Further, revenues from Communication service provider increased 11% year over year, driven by adoption of IA-based solutions. Management believes “trade-related demand pull-ins” aided third-quarter performance.
Intel Corporation Price, Consensus and EPS Surprise
Intel Corporation price-consensus-eps-surprise-chart | Intel Corporation Quote
Management is elated on growing clout of latest high performance Cascade Lake family of Xeon processors integrated with deep learning (DL) tools to accelerate AI processes. Further, the processors are integrated with Intel’s Optane DC Persistent Memory solution, which is witnessing rapid adoption.
In the reported quarter, major cloud vendors, including Amazon Web Services, Alibaba (BABA - Free Report) and Google, utilized Cascade Lake family of Xeon processors to deploy complex instances. Moreover, companies like TU Darmstadt and BP opted for 9200 series of highest performance Xeon Scalable platform, to deploy complex workloads.
In the third quarter, Intel’s Optane DC Persistent Memory solution was selected by Oracle to power its latest Exadata platform.
Internet of Things Group or IOTG (5.2%) — Revenues improved 9.4% from the year-ago quarter to $1.005 billion. Growth was driven by strength in transportation and retail applications.
Mobileye revenues (1.2%) of $229 million were up 19.9% on a year-over-year basis primarily driven by growing proliferation of ADAS and new design wins. Mobileye garnered six new design wins in the reported quarter.
Excluding Wind River, which the company divested in second-quarter 2018, IoT businesses, comprising IOTG and Mobileye revenues, are up 18% on a year-to-date basis.
Non-Volatile Memory Solutions Group or NSG (6.7%) — Revenues improved 19.3% year over year to $1.29 billion on momentum in bit growth. However, decline in NAND pricing limited growth.
Programmable Solutions Group or PSG (2.6%) — Revenues improved 2.2% from the year-ago quarter to $507 million on sturdy wireless business. However, weakness in Cloud & Enterprise demand limited growth.
In the reported quarter, Intel shipped the first 10nm process nodes-based Agilex FPGAs.
Intel also has a residual segment, — All Other (0.3%) — which includes results of operations from other adjustments. The segment reported revenues of $67 million, down almost 35% 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 data-centric business came in at $9.481 billion (49.4% of total revenues), up 6.2% collectively on a year-over-year basis.
Intel Corporation Revenue (Quarterly)
Intel Corporation revenue-quarterly | Intel Corporation Quote
Margins in Detail
Non-GAAP gross margin for the second quarter was 60.4%, contracting 550 bps on a year-over-year basis. Management noted that absence of an anticipated grant pertaining to NAND factory, and better-than-expected NAND revenues had “mixed effects,” which could not be offset by growth DCG revenues.
Non-GAAP research & development (R&D) expenses and marketing, general & administrative (MG&A) expenses declined 7% from the year-ago quarter to $4.7 billion.
Non-GAAP operating margin for the quarter was 35.9%, which contracted almost 380 bps on a year-over-year basis. Management noted that costs pertaining to 10-nm ramp, decline in NAND pricing and lower platform revenues impacted margins negatively. Although tight spending measures and strength in server and client ASPs acted as tailwinds, these factors were unable to mitigate the decline.
Segment Operating Margin Details
Segment operating margin was 33.6%, contracting 470 bps on a year-over-year basis.
CCG operating margin of 44.3% remained flat compared with the year-ago quarter. Decline in CCG revenues limited margin expansion amid reduction in spending driven by exit from 5G smartphone modem business.
DCG operating margin was 48.8%, contracting 140 bps from the year-ago figure.
IOTG operating margin was 30.7%, which contracted 420 bps from the year-ago quarter. IOTG product mix including lower margin products led to 4% decline in operating margin in the quarter.
Mobileye operating income came in at $67 million, up 28.8% year over year.
NSG group reported operating loss of $499 million compared with $160 million operating income in the year-ago quarter, primarily owing to “one-time impacts” which include absence of anticipated grant pertaining to NAND factory.
PSG operating income of $92 million declined 13.2% from the year-ago quarter, primarily owing to unfavorable product mix.
All Other segment reported loss of $942 million compared with a loss of $904 million reported year-ago quarter.
Balance Sheet
As of Sep 28, 2019, cash and cash equivalents, short-term investments and fixed-income trading asset balance was $12.025 billion compared with $11.944 billion in the previous quarter.
The company ended the reported quarter with $23.707 billion in long-term debt and $5.2 billion in short-term debt, which has led to a total-debt balance of $28.907 billion, compared with $28.815 billion total debt in the previous quarter.
Intel noted that it has generated $11.71 billion in free cash flow on a year-to-date basis. The company reported $10.7 billion in cash from operations in the third quarter.
In the third quarter, the company returned approximately $5.9 billion to shareholders, which includes dividends worth $1.4 billion and repurchase of 92 million shares worth $4.5 billion.
Q4 View Holds Promise
Intel guided fourth-quarter 2019 revenues of around $19.2 billion. The Zacks Consensus Estimate is currently pegged at $18.83 billion.
Non-GAAP operating margin is anticipated to be approximately 33.5%.
PC centric part of the business is anticipated to be flat to marginally decline year over year. Meanwhile, NAND pricing growth and recovery in cloud are anticipated to drive Data-centric business up by 6-8%.
Intel is increasing investment in 5G. The company anticipates sale of IMFT facility to Micron (MU - Free Report) and 5G smartphone business to Apple (AAPL - Free Report) to conclude in the fourth quarter.
Non-GAAP earnings are anticipated to be $1.24 per share. The Zacks Consensus Estimate is currently pegged at $1.20.
Impressive Guidance for 2019
Intel expects to sustain the third-quarter momentum in the fourth quarter. For fiscal 2019, management now expects revenues of $71 billion compared with the previously guided figure of $69.5 billion. The Zacks Consensus Estimate is currently pegged at $69.41 billion.
Gross margin is expected to be approximately 60%, unchanged from the previous guidance due to transition costs related to 10 nm technology and inventory-based adjustments.
Non-GAAP operating margin is now projected to be 32.5%, compared with the previously guided figure of 32%.
Non-GAAP earnings are anticipated to be $4.60 per share compared with $4.40 expected earlier. The Zacks Consensus Estimate is pegged at $4.38.
The company now projects full-year capital expenditure at $16 billion, compared with prior guided figure of $15.5 billion.
Free cash flow is now anticipated at $16 billion for the full year 2019, compared with previously guided figure of $15 billion.
Intel expects to repurchase roughly 20 billion shares over upcoming 15-18 months time period.
Zacks Rank
Intel carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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