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Earnings

Will further delays hurt Intel’s share price?

Intel’s [INTC] share price is down 12.18% for the year to date through 20 October as a hold up in the processing of its 7-nanometer chip has hit the stock. While Intel’s share price is 22.46% above its 52-week low of $43.63 recorded on 16 March, it’s still 22.9% below the 52-week high of $69.29 at which it peaked on 24 January. What will happen to Intel’s share price when it reports third quarter earnings on 22 October? 

On 23 July, its second quarter earnings saw the company announce delays to the release of its 7-nanometer chip; Intel’s share price tumbled 16.2% on the 24 July, making it the worst S&P 500 performer of the day. 

This was in stark contrast to its competitor Advanced Micro Devices [AMD], which gained 16.5% and was the day’s best S&P 500 performer. Earlier in July, Nvidia [NVDA] had taken Intel’s crown as the most valuable US chipmaker.

 

 

 

Overshadowing earnings

Delays are limiting Intel’s share price. Manufacturing issues related to the 7-nanometer chips, which are not expected to be shipped until the second half of 2022 or first half of 2023, were blamed on Intel’s reluctance to outsource, according to Bloomberg

The impact of the delay announcement on Intel’s share price overshadowed the positive earnings for the three months to the end of June. Revenue came in at $19.7bn, better than the $18.55bn predicted by Refinitiv and up 20% year-over-year on Q2 2019’s revenue of $16.50bn. Earnings were $1.23 per share, versus $1.11 expected by analysts.

 

$19.7billion

Intel's Q2 2020 revenue

 

 

Intel’s data centre segment, which builds chips for cloud providers, drove gains in the quarter. 

It delivered $7.1bn in sales, accounting for 36% of total revenue and up 43% year-over-year. The segment was aided by work-from-home orders and the demand placed on data centres and cloud infrastructure as a result of more people working remotely. 

Intel’s biggest segment, its client computing group, accounted for $9.5bn in revenue and crept up 7% year-over-year. This followed a decline in the first quarter as the coronavirus pandemic caused supply chain disruption and delays to PC shipments.

It's not all doom and gloom, though. While Intel’s share price dropped dramatically in reaction to the 7-nanometer chip delay, there should be no concerns over the company’s long-term prospects, Larry Ramer writers in InvestorPlace.

“In the past, Intel’s financial results have improved significantly even though it has had to delay shrinking the size of its chips,” Ramer said, referring to the two-year delay on its 10-nanometer chips. 

“Given the company’s technology advances and the more favourable environment for chip makers, Intel’s ability to overcome its delays is actually much stronger now than in the past.”

 

“Given the company’s technology advances and the more favourable environment for chip makers, Intel’s ability to overcome its delays is actually much stronger now than in the past.” - Larry Ramer in InvestorPlace 

 

 

 

What do the analysts think of Intel’s share price?

The chipmaker has called for revenue of $18.2bn and earnings per share of $1.10 in the upcoming quarter. Meanwhile, analysts polled by Refinitiv have consensus estimates of $17.9bn and $1.14. 

As for full-year guidance, Intel is expecting revenue to be $75bn, which would mark a 2.7% increase on fiscal 2019’s revenue. This growth could see Intel’s share price creep higher despite ongoing delays.

Intel’s data centre segment is likely to see flat growth or a slight decline in sales compared to the same quarter in 2019, Business Quant wrote in Seeking Alpha

This is because data centre demand has eased as some workers return to their offices. As for the client computing group, Business Quant expects sales of PCs and laptops to be strong.

There have been 43 ratings issued by Wall Street analysts in the last year, according to MarketBeat, 16 of which are Buys, 17 Holds and 10 Sells. 

The consensus target for Intel’s share price is $61.50, which implies a 12.7% increase from its 16 October close.

 

Market cap$227.24bn
PE ratio (TTM)9.82
EPS (TTM)5.44
Quarterly revenue growth (YoY)19.50%

Intel share price vitals, Yahoo Finance, 21 October 2020

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