Chip stocks have caught fire, thanks to strong earnings just released by Texas Instruments (TXN) which sent TXN stock towards all-time highs. Often seen as a proxy for the health of the semiconductor component space, TI’s strong results, particularly its growth in electronic devices and vehicles, bodes well for Intel (INTC) which is set to report third quarter fiscal 2020 earnings results after the closing bell Thursday.
The semiconductor giant has plenty of atoning to do. Its shares were clobbered by 12% following its second quarter announcement, during which the company announced it would delay its 7nm-based chip by 18 months to two years. This seemingly gave Intel’s rivals, namely Advanced Micro Devices (AMD), a strong lead which would be hard for Intel to regain. The news overshadowed what was otherwise a great quarter.
With the stock still down 10% year to date, Intel — which has beaten on the top and bottom lines in each of the past six quarters — looks like a bargain. And spanning back the last thirteen quarters, Intel has missed on the top line just one time. So I’m not betting on a miss this quarter. But the company on Thursday must redeem itself by showing significantly better execution by showing solid market share gains from improving demand in personal computer sales due to the work-from-home environment.
For the quarter that ended September, the Santa Clara, Calif.-based company is expected to earn $1.11 per share on revenue of $18.22 billion. This compares to the year-ago quarter when earnings were $1.42 per share on revenue of $19.19 billion. For the full year, ending in December, earnings are expected to decline 0.41% year over year to $4.85 per share, while full-year revenue of $75.13 billion would rise about 4.4% year over year.
Intel is one of a handful of enterprise and consumer companies that have benefit from the work-from-home trend. Intel’s PC revenue still account for about 50% of the company’s overall revenue and 60% of profits. Its emphasis on PCs and the datacenter has fueled revenue in over the past year. In the second quarter it once again delivered a beat on the both the top and bottom lines with Q2 revenue rising about 20% year over year to $19.7 billion, topping Street estimates by more than $1 billion.
Second quarter adjusted EPS of $1.23 was also strong, beating estimates by 12 cents, driven by 54.8% gross margin which came above consensus of 55.9%. Digging deeper, the company enjoyed a 43% rise in its datacenter group, driven by 47% growth from cloud service providers. Notably, Intel reported a 76% surge surge in the memory business. Similarly, Intel’s PC business revenue rose 7%, which suggests — despite notions to the otherwise — Intel is not feeling the effects of increased competition from AMD as some might suggest.
As noted, Intel’s own misstep with the delay of its 7nm-based chip by 18 months to two years is now the biggest competitive risk as it opens the door for AMD to establish a lead. On Thursday the Street will want an update on its progress not only with the 7nm-based chip, but also the 10nm chip. Assuming there are no negative news, and (somewhat) upbeat guidance, Intel stock could be a perfect setup for rebound.
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