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Nicholas Kitonyi
Nicholas Kitonyi
Articles (246)  | Author's Website |

Intel Earnings: Strong Quarter Boosted by Data Center Growth

Shares up 8% after hours

April 26, 2018 | About:

Intel Corp. (NASDAQ:INTC) reported its first-quarter 2018 results on Thursday afternoon, beating analyst estimates on both revenue and earnings. The Silicon Valley-based semiconductor company reported GAAP revenue of $16.1 billion for the quarter, up 9% from prior-year quarter. It topped analyst estimates of $15.5 billion.

Intel also surprised on earnings per share as they increased 32% to 87 cents, besting estimates of 72 cents.

Management also provided strong guidance for second-quarter and full-year 2018, projecting $16.3 billion in revenue for the quarter. Analysts expect $15.55 billion. Adjusted earnings per share for the quarter is now expected to be 85 cents, versus the consensus analyst estimate of 81 cents.

For the year, the company expects $67.5 billion in revenue and $3.85 in earnings per share, which is ahead of analyst estimates of $65.06 billion and $3.56.

The company’s impressive first-quarter results and strong guidance come at a time when there have been industry-wide concerns over the potential impact of recently discovered security vulnerabilities in chips. The company has also had to deal with the impending threat of cannibalization after Apple Inc. (NASDAQ:AAPL), one of its main customers, said it is planning to design its own laptop chips.

Shares of Intel rallied 8% in after-hours trading following the strong results, adding to the day’s 3% gain.

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Intel’s revenue growth was fueled by its data center unit, which saw sales soar 24% from the same period last year to top $5.2 billion. On the other hand, the company’s largest revenue contributor, the PC-centric cloud computing unit, posted a 3% increase in revenue to $8.2 billion, while internet of things posted a 17% jump in sales to $840 million. In addition, the Non-Volatile Memory Solutions Group, which hit the $1 billion mark, gained 20% from the same period last year and Programmable Solutions grew 17% to $498 million.

While the gross margin declined slightly to 62.3%, its operating income was up 21% to $4.3 billion. The company also managed to lower its effective tax rate for the quarter by 10.6 percentage points to 11.7%.

Intel’s $6.3 billion in cash from operations, coupled with the robust growth in operating profits and a decline in the effective tax rate, puts it in a strong position to absorb short-term performance shocks resulting from issues like security vulnerabilities in chips or a new entrant in the chipmaking business.

The company’s stock price was briefly affected by the news its fellow chipmaker, Taiwan Semiconductor Manufacturing Ltd. (NYSE:TSM), had lowered its projections for mobile chip sales for the year. But Intel appears to have a more positive view of things based on its revenue and earnings guidance.

The company also announced it paid $1.4 billion in dividends during the quarter, while share repurchases amounted to $1.9 billion.

The company expects the growing demand for data to continue fueling its growth in the near future. During the earnings call, CEO Brian Krzanich said "the strength of Intel’s business underscores my confidence in our strategy and the unrelenting demand for computing performance fueled by the growth of data."

He also said Intel will begin rolling out improvement in the manufacturing operations of the 14-nanometer node later this year.

In summary, Intel’s performance suggests the market is shifting toward data while the focus on hardware continues to decline. Most technology companies are now focusing on ways to improve data mining, storage and analytics as they continue to implement strategies that will fuel growth for the next several years.

Disclosure: I have no positions in the stocks mentioned in this article.

About the author:

Nicholas Kitonyi
Nicholas the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on research sites like Seeking Alpha and Benzinga.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. As a trader, Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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