For the first time in a long while, chip behemoth Intel Corp. (INTC – Free Intel Stock Report) reported some disappointing news during its fourth-quarter conference call. We'll discuss what happened during the December quarter and the outlook for the March period with more granularity in the paragraphs below.
The December quarter was a positive one, with results coming in better than our expectations at the bottom line. Specially, sales dialed in at $18.7 billion, which was only slightly below our roughly $19 billion estimate. Furthermore, share net on a non-GAAP basis (excludes items we deem to be nonrecurring in nature) clocked in at $1.28, which was 18% above the year-ago tally of $1.08 and a better showing than we expected ($1.24).
What drove the outperformance during the interim? The PC-centric unit advanced 10%, thanks to continued strong demand for Intel's higher performance products, along with added strength in commercial and gaming. Furthermore, the data-centric business improved 9%, due to 24% cloud segment growth and 12% communications service provider segment expansion, which helped to offset a 5% decrease in enterprise. While the Internet of Things category registered a 7% decline from last year's comparable-period tally, the segment actually advanced 4% if the divestiture of Wind River was excluded from the presentation. What's more, Intel's Network Services Group (memory) and Programmable Solutions Group posted record quarterly sales during the December interim. The latter business benefited from strength in the data center and communications market segments. Finally, the lucrative Mobileye business achieved a 43% increase at the top line, to $183 million, as customer design win momentum continued. Last year, Mobileye achieved 28 design wins and 78 vehicle model launches. Mobileye provides chips for self-driving cars, which we believe will be a significant market down the road.
However, the outlook for the first quarter of 2019 wasn't promising. Management looks for sales to be approximately $16 billion with share earnings of $0.87 on a non-GAAP basis. This compares unfavorably to our initial estimates for sales and earnings of $17.4 billion and $1.00, respectively. We attribute the watered down expectations to a slowdown in China's economy, coupled with ongoing trade tensions between the United States and China.
As a result of the recent news, we have tempered our view for full-year 2019. We now look for sales of $71.5 billion and earnings per share of $4.45. We had been looking for a top line of nearly $73.4 billion with share net clocking in at $4.60. Intel shares fell in after-market trading following the fourth-quarter earnings release.
We continue to view INTC stock in a favorable light for the long run based on its solid risk-adjusted return potential. However, we ought to note that volatility might well be above-average in the near term, reflecting the aforementioned economic slowdown in China. What's more, the company continues to search for a new CEO following the departure of Brian Krzanich in June of last year. Robert Swan is the interim CEO until a permanent replacement is found.
About The Company: Intel Corporation is a leading manufacturer of integrated circuits. In addition to primarily supplying manufacturers of personal computers, the company serves a multitude of other global markets, including communications, industrial automation, military, and other electronic equipment. Intel’s product line consists of microprocessors, with the Pentium series being the most notable. It also manufactures microcontrollers and memory chips, and the company sells computer modules and boards, and network products.
- Alan House
