After the closing bell on April 22, Intel Corp. (INTC, Financial) reported its earnings results for the first quarter of fiscal 2021, which ended on March 27. Both earnings and revenue fell year over year, but surpassed what analysts had been predicting.
The company's shares fell 1.77% over the course of the day to close at $62.57 as investors anticipated an earnings retreat. Prices dropped further in after-hours trading following the news.
Earnings results
Revenue for the quarter totaled $18.57 billion, a decrease of 1% year over year, while earnings per share came in at 82 cents on a GAAP basis (versus $1.31 a year ago) and $1.39 on an adjusted basis (versus $1.41 in the prior-year quarter). Analysts had been expecting revenue of $17.86 billion and adjusted earnings of $1.15 per share.
By segment, PC sales had their best quarter in years, with sales of chips for notebook laptops up 54% year over year and total PC volumes increasing 38%. The Client Computing group, which includes PC chips and makes up over 59% of Intel's revenue, reported $10.61 billion in sales compared to $9.78 billion in the year-ago quarter. Unfavorable product mix was a headwind to results as most desktops and laptops sold used less expensive chips, and Apple's (AAPL, Financial) increasing use of its own chips instead of Intel's was also a drag.
Revenue was also better than expected in the Internet of Things Group (IOTG) and Mobileye. Mobileye set a new revenue record in the quarter, up 48% year over year to $377 million, while IOTG was up 4% to $914 million.
Data Center revenue was down 20% year over year to $5.56 billion compared to the $6.99 billion it reported a year ago. Sales in this segment saw a significant boost last year as companies increased their cloud operations and more people worked from home.
The Non-Volatile Memory Solutions Group (NSG) operating segment, which includes storage solutions, using NAND technology, was down 17% to $1.1 billion, while the Programmable Solutions Group (PSG) segment declined 6% to $486 million.
The GAAP operating margin for the company declined to 18.8% from last year's 35.5%. However, the non-GAAP operating margin, which excludes restructuring and "other" charges, only decreased to 32.8% versus 39.5% in the prior-year quarter. The gross margin was down 5.4 percentage points year over year at 55.2%.
As of the quarter's end, the company's balance of cash and cash equivalents stood at $5.19 billion versus $5.86 billion a year ago, while total debt was $33.23 billion compared to $33.89 billion.
Looking forward
For the second quarter of the fiscal year, Intel guides for GAAP revenue of $18.90 billion, non-GAAP revenue of $17.80 billion, GAAP earnings of $1.05 and non-GAAP earnings of $1.05. Analysts are predicting revenue of $17.55 billion and adjusted earnings of $1.09 per share.
When Gelsinger unveiled the company's plans for the future in late March, Intel projected that it would achieve earnings per share of $4 and revenue of $76.5 billion for full-year 2021. The company has now raised its full-year guidance, anticipating GAAP revenue of $77.0 billion, non-GAAP revenue of $72.5 billion, GAAP earnings of $4 and non-GAAP earnings of $4.60.
Intel's new CEO Pat Gelsinger, who took the reins in February, had the following to say:
"Intel delivered strong first-quarter results driven by exceptional demand for our leadership products and outstanding execution by our team. The response to our new IDM 2.0 strategy has been extraordinary, our product roadmap is gaining momentum, and we're rapidly progressing our plans with re-invigorated focus on innovation and execution…This is a pivotal year for Intel. We are setting our strategic foundation and investing to accelerate our trajectory and capitalize on the explosive growth in semiconductors that power our increasingly digital world."
Intel's strategy shift, which includes plans to invest $20 billion in new microchip manufacturing plants and become a contract chip manufacturer (or foundry), is expected to take years to come to completion. As for the most recent quarter, sales were essentially flat even as demand for microchips skyrocketed.
Valuation
As of market close on April 22, shares of Intel traded with a price-earnings ratio of 12.67, which is below 89% of industry peers and mostly in line with the company's own 10-year median price-earnings ratio of 12.63. Despite the low price-earnings ratio, the GuruFocus Value chart rates the stock as fairly valued on unfavorable analyst estimates for future growth.
If the company's strategy shift is successful, this could prove a great time to pick up shares at value prices. The worldwide increase in demand for microchips means that chip foundries will be in high demand in the coming years as companies find it increasingly profitable to outsource chip production.
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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