Chip behemoth Intel (INTC – Free Intel Stock Report) has reported second-quarter earnings that were largely positive, though its share price has taken a step back in pre-market action.
On the positive front, financial comparisons were solid on a year-over-year basis and relative to our expectations. Looking at it with more granularity, sales came in at nearly $17 billion, which was slightly higher than our $16.9 billion estimate. What's more, share net clocked in at $1.04, which was above our $1.00 call and markedly outdistanced the previous-year tally of $0.72.
Dissecting things a bit further, Intel achieved top-line growth across the board. Specifically, the PC-centric business posted a sales increase of 6%, thanks to strong demand for gaming and commercial products. Though PC volumes were down 1% compared to last year, average selling prices for desktop products climbed 13%. What's more, sales at the data-centric businesses increased 26%, fueled by a 27% advance at the Data Center Group. This division benefited from strong results from cloud and communications services providers, owing to the ample demand for data and efforts to improve the performance of data-intensive workloads, such as artificial intelligence. Finally, Intel's memory (NSG), Internet of Things, and Mobileye businesses each achieved record quarterly revenue during the June period. Mobileye, sales soared 37%, reflecting the adoption of advanced driver-assistance increases.
Given the recent performance, management has upped its guidance for the third-quarter and full-year 2018. The top line is likely to be $18.1 billion (plus or minus $500 million) during the September quarter, which should result in earnings per share (on a non-GAAP basis) of $1.15. For the full year, sales are expected to be about $69.5 billion, while share earnings ought to be in the neighborhood of $4.15. The tax rate for 2018 is likely to be 12.5% according to management, which is poised to benefit from the 2017 Tax Cuts and Jobs Act. We are onboard with management's guidance. Based on the chipmaker's stellar company-specific fundamentals and a strengthening domestic economy, Intel should enjoy a robust year in 2018.
However, there was some concerning news that sent is pressuring INTC shares this morning. Specifically, the aforementioned 27% year-over-year increase in data-center sales, to $5.5 billion, failed to live up to the consensus expectation of $5.61 billion. This segment is under the microscope, as not only is it one of the company's largest divisions, but its deemed to be the fastest-growing and a key variable in the company's future performance.
In other news, interim CEO Bob Swan noted that the board of directors is actively searching for a permanent replacement, either externally or from within Intel. Former CEO Brian Krzanich stepped down from his post in June after news surfaced that he was involved in inappropriate relations with a fellow employee.
Nevertheless, we still think Intel is headed in the right direction. Management has done a good job of veering the company away from the mature personal computer market and towards higher-growth segments, such as data-centric products and silicon used in autonomous cars. It should be noted that Intel stock has enjoyed strong price advances in recent months, thanks to healthy earnings gains. However, as was the case during the second-quarter earnings announcement, if figures don't quite live up to heightened expectations, the share price will probably get a haircut. That appears to be the case once again this morning. Still, this blue-chip technology stock would make for a solid addition to most portfolios. A competitive dividend yield, especially by technology-company standards, also adds to the high-quality issue's appeal.
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
