Chip behemoth and Dow-30 component Intel (INTC – Free Intel Stock Report) has reported strong results for the third quarter, and its share price has responded accordingly. Investors should note that INTC stock tends to increase in price leading up to quarterly earnings announcements. We feel this may be due to investor confidence that management's guidance is on the mark or, perhaps, even conservative. Indeed, from our perspective this is generally true. Thus, the fact that these shares have risen in price after the earnings announcement is a testament to just how strong the quarter was this cycle.
Looking at it with more granularity, third-quarter earnings per share came in at $1.01 a share on a non-GAAP basis (excludes items deemed to be nonrecurring in nature). This represented a sharp 26.3% advance over the previous-year tally and was markedly ahead of our $0.80 forecast. Revenues were also stronger than we modeled, clocking in at $16.1 billion, which was a 2.4% increase over 2016's comparable-quarter tally and sharply above our $15.7 billion call.
What were the reasons behind the relative outperformance? It appears that the strong showing was broadbased, as most of the industry leader's segments produced year-over-year top-line increases. Data Center Group comparisons advanced 7% over the third quarter of last year, to $4.9 billion. This is noteworthy, as this segment appears to be followed closely by Wall Street, reflecting its high growth potential. This unit is also the company's second-largest by sales.
The Internet of Things also contributed with a year-over-year top-line gain of 23%. Investors should note that this advance was achieved off a relatively low base ($849 million). Still, this is another avenue that could offer considerable growth potential longer term, as this represents a way for everyday products to be connected to one another via the Internet.
What's more, the Programmable Solutions Group chipped in with a 10% improvement, thanks to design wins with automotive and cloud service provider customers that help advance Intel's position in artificial intelligence.
The belle of the ball, from an improvement standpoint, however, was the non-volatile memory solutions division, which posted a stellar 37% year-over-year increase. Record top-line results were achieved in this segment, with sales clocking in at $891 million.
Intel's largest unit, the Client Computing Group, posted flat sales of $8.9 billion.
Meantime, the company gave good guidance for the fourth quarter and full-year 2017. For the final period, the top line is expected to be $16.3 billion, plus or minus a few hundred million. This represents a slight decline from our initial estimate and the year-ago figure of nearly $16.4 billion. The gross margin for the fourth quarter is likely to be 63%, plus or minus a couple of percentage points, which should equate to a bottom line tally of about $0.86 on a non-GAAP basis. That figure is above our previous estimate of $0.82 and the prior year's $0.79.
As a result of the recent news, we have boosted our top and bottom-line expectations for full-year 2017. We now look for sales of $62 billion, while share profits should dial in at $3.25. The top-line modification is about a $600 million boost form our late-September full-page report, while the new earnings estimate is a notable quarter-per-share increase.
We continue to recommend Intel shares for conservative investors seeking a presence in the semiconductor space. A solid dividend, which isn't common in the technology sector, adds to its total-return potential 3 to 5 years hence.
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
