Intel rises on earnings beat and optimistic forecast

Intel shares rose more than 7% in extended trading on Thursday after the chipmaker reported better-than-expected earnings and revenue and gave an upbeat forecast.

Here are the key numbers for the second quarter:

• Earnings: $1.06 per share, excluding certain items, vs. 89 cents per share as expected by analysts, according to Refinitiv
• Revenue: $16.51 billion, vs. $15.70 billion as expected by analysts, according to Refinitiv

Intel’s revenue fell 3% from a year earlier in the period, which ended June 29, with declines in both PC and server chip categories, according to a statement. In the first quarter Intel’s revenue was down slightly from the prior year.

The company’s biggest business segment, the Client Computing Group that includes desktop and notebook PC chips, posted $8.84 billion in revenue. That’s above the $8.13 billion average estimate among analysts surveyed by FactSet.

Intel’s Data Center Group, which includes server processors, produced $4.98 billion in revenue, above the FactSet analyst consensus of $4.89 billion.

Intel CEO Bob Swan said on Thursday’s conference call that the company is managing trade-related challenges, though there’s been some difficulty.

“Trade uncertainties created anxiety across our customers’ supply chain and drove a pull-in of client CPU orders into the second quarter,” Swan said. “We also halted shipments to certain customers in response to the U.S. government’s revised entity list. After a thorough review we were able to resume shipments of some products in compliance with regulations, and the net impact on the second quarter was limited.”

The comments were presumably a reference to Chinese technology company Huawei, to which other chipmakers like Qorvo and Skyworks paused shipments, resulting in slashed guidance.

In the second quarter Intel started shipping 10th-generation “Ice Lake” PC chips based on a 10-nanometer process, announced plans to exit the 5G smartphone modem business, acquired Barefoot Networks and appointed former Qualcomm executive George Davis as its new chief financial officer.

“We are … on track to launch 7-nanometer in 2021,” Swan said, adding that it will put the company “on pace with the historical Moore’s law scaling.”

Also on Thursday Apple confirmed its plan to buy the majority of Intel’s smartphone modem business in a deal valued at $1 billion.

In the quarter, Gartner and IDC suggested PC shipments increased from a year ago, which is a positive for Intel, Christopher Rolland and David Haberle of Susquehanna International Group wrote in a Wednesday note. The analysts, who have a neutral rating on Intel, said they thought the company’s PC chip shortages could be easing up.

“Our Asia checks indicate some shortages still exist (perhaps 3%-5%), with the expectation these will end in August/September,” the analysts wrote.

However, they said Intel’s share of desktop PC chips was the lowest it’s been since the firm started following it in 2015, at about 81% share.

“The decline in Intel’s competitive positioning has not been acknowledged by the market,” Atlantic Equities analyst Ianjit Bhatti wrote in a Monday note initiating coverage with an underperform rating on the stock. “In order for us to take a more constructive stance on Intel, we either would need to see evidence that it can restrict AMD’s share gains or that it can successfully expand into new growth markets such as AI [artificial intelligence] processors. “

Swan said that share losses in the second quarter had to do with Intel’s limited supply. Davis on the call said that it could not meet all customer demand for PC chips in the quarter, and that he expects supply to match demand again in the second half of 2019.

Guidance was above consensus across the board.

For the third quarter, Intel expects $1.24 in earnings per share, excluding certain items, on $18.0 billion in revenue. Analysts were looking for $1.16 per share, excluding certain items, on $17.72 billion in revenue, according to Refinitiv.

For the full year, Intel is now calling for $4.40 in earnings per share, excluding certain items, and $69.50 billion in revenue. Analysts polled by Refinitiv had expected $4.24 per share, excluding certain items, and $68.34 billion in revenue.

Intel stock is up about 11% since the beginning of 2019.

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