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Margaret Moran
Margaret Moran
Articles (349) 

Intel's 3rd-Quarter Earnings: Hopping on the Legacy-Dumping Train

Along with earnings, the chipmaker announced the sale of its memory business

October 22, 2020 | About:

On Thursday after the market closed, American multinational technology company Intel Corp. (NASDAQ:INTC) announced earnings results for its third quarter of fiscal 2020.

Despite posting a revenue beat and earnings that were in line with analyst predictions, shares of Intel dropped 10% in after-hours trading following the earnings release as weakness in the memory and storage business confirmed the motive behind the company's plan to divest itself of this declining segment.

Overview of the quarter

Intel reported revenue of $18.33 billion for the quarter, down 3% from the same quarter of last year, while GAAP earnings per share were $1.02 and non-GAAP earnings per share came in at $1.11, representing year-over-year declines of 25% and 22%. Wall Street had been expecting revenue of $18.25 billion and non-GAAP earnings of $1.11 per share.

By segment, data-centric revenue was down 10% overall, with Data Center Group down 7%, Internet of Things down 33%, NSG (memory and storage) down 11% and PSG (programmable semiconductors) down 19%. PC-centric revenue improved 1%.

Intel further broke down the Data Center Group results, reporting that cloud revenue was up 15% year over year while the enterprise and government portion of the business dropped 47%.

Overall, the gross margin declined 570 points to 53.1%, while the operating margin dropped to 27.6% from last year's 33.6%. The tax rate increased from 10.8% to 15.2%.

The company generated $8.2 billion in cash from operations, paid dividends of $1.4 billion and accelerated its share repurchases to $10.0 billion, hitting the $17.6 billion mark of its planned $20 billion in share repurchases that it announced in October 2019.

At the end of the quarter, cash and cash equivalents stood at $3.356 billion.

CEO Bob Swan had the following to say:

"Our teams delivered solid third-quarter results that exceeded our expectations despite pandemic-related impacts in significant portions of the business. Nine months into 2020, we're forecasting growth and another record year, even as we manage through massive demand shifts and economic uncertainty. We remain confident in our strategy and the long-term value we'll create as we deliver leadership products and aim to win share in a diversified market fueled by data and the rise of AI, 5G networks and edge computing."

Looking forward

For the fourth quarter of 2020, Intel expects revenue near $17.4 billion and earnings of around $1.02 per share on a non-GAAP basis. The company also provided guidance for full-year 2020, anticipating revenue of $75.3 billion and EPS of $4.55 for the year.

Stealing the show from the earnings results was Intel's announcement on Monday that it plans to sell its flash-memory, or NAND, business to Korean chipmaker SK Hynix Inc. (XKRX:000660). Hynix currently has 10% of the NAND market, while Intel has 9%.

The $9 billion deal represents a move to get rid of the hot potato of a declining business as more data is moved to the cloud. Other mature technology companies such as International Business Machines Corp. (NYSE:IBM) have made similar moves as they attempt to earn more cash to invest in higher-growth businesses.

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

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