Intel (INTC, Financial) stock has dropped by nearly 8% since the company reported its third-quarter results, in which the company posted revenue growth of 9% over the prior period.
Revenue increased in all three of its top segments –Â Client Computing Group (CCG), Data Center Group (DCG) and Internet of Things Group (IoTG) –Â but the market chose to overlook those numbers and decided to send them down for now.
A drop of a few percentage points is understandable when the numbers are down, but when a stock loses 8% to 10% when revenue is obviously growing points in only one direction – guidance. And that’s borne out by the fact that the downward movement happened right after the earnings announcement. Investors weren’t impressed with what Intel looked forward to in the ongoing quarter.
Intel is estimating a 15% growth for DCG revenue, which is higher than it achieved sequentially during the first three quarters of the current fiscal. During the first three quarters revenues have grown from $11.673 billion to $12.568 billion, a growth of 10.7% and far lower than Intel's target.
The market might not have reacted sourly if that were a blip in the radar. The company was all set to continue its double-digit growth rate in the segment, which was considered to be the driving force behind Intel’s future. Unfortunately, the company moved its expectation downward, saying that it now expects growth to come in the high single digits.
"In addition, non-CPU adjacencies across DCG grew an impressive 34%. This category includes our new omni-path high-performance fabric which is leading in performance and gaining design win momentum. It includes our Silicon Photonics and our Xeon Phi, all of which began to ramp this year.
"However, enterprise revenue was down 3%, trending below our expectations of a roughly flat year-over-year. As a result, DCG revenue growth for the full-year will likely be in the high-single digits."Â – Third-quarter earnings call
The downward revision of growth rate in the all-important data center segment took the wind out of Intel’s sails. We can only assume that this was foremost among the reasons that pushed the stock lower.
Although IoTG has also shown significant growth, it is far too nascent a segment to contribute meaningfully toward offsetting the slowing growth in the core CCG. That leaves DCG as Intel’s last remaining hope for the future. As such, unless Intel picks up some speed in this segment over the next quarter or two, the stock will remain under pressure.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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