Ahead of Intel's (INTC) Q3 Earnings: DCG & NSG Under Spotlight

Zacks Equity Research
·5-min read

Intel INTC is scheduled to release third-quarter 2020 results on Oct 22.

Coronavirus-led digitization is expected to have benefited Intel’s third-quarter performance as cloud-based solutions witness rapid uptake and PC shipments gain significant traction.

Moreover, a recovering automotive sector, solid momentum of its latest high-performance Xeon processors, and growing adoption of IoT applications may have contributed to the to-be-reported quarter’s performance.

However, Intel is increasing investments on infrastructure, product development and platform to retain its competitive stance and this is likely to have affected profitability in the to-be-reported quarter.

Intel Corporation Revenue (Quarterly)

Intel Corporation Revenue (Quarterly)
Intel Corporation Revenue (Quarterly)

Intel Corporation revenue-quarterly | Intel Corporation Quote

Further, stiff competition from Advanced Micro Devices AMD, NVIDIA NVDA and Xilinx XLNX is likely to have put pricing pressure and limited margin expansion. Markedly, AMD’s second-generation EPYC server processors continue to witness strong adoption rates.

Click here to know how the company’s overall third-quarter performance is expected to be.

Data Centric Business Driven By Remote Working Trends

Intel’s data-centric business model primarily comprises the Data Center Group (“DCG”), Internet of Things Group (“IOTG”), Non-Volatile Memory Solutions (“NSG”), Programmable Solutions Group (“PSG”) and other business units.

The company’s data centric model is likely to have benefited from the continuing work from home trend, robust adoption of cloud-based applications as well as rapid deployment of 5G network.

Revenues from DCG business are expected to have gained from rise in demand from cloud service providers (CSP) and strength in high-performance second-generation Xeon Scalable processors.

However, weakness in demand from the government and enterprise vertical is likely to have negatively impacted revenues of the DCG segment in the to-be reported quarter.

Notably, the Zacks Consensus Estimate for DCG revenues currently stands at $6.106 billion, indicating a decline of 4.3% from the year-ago quarter.

A recovering automotive sector, Mobileye’s ADAS wins along with synergies from acquisition of mobility as a service solutions’ company Moovit (May 2020) are anticipated to have contributed to Intel’s Mobileye and IOTG business.

In spite of modest recovery, the automotive sector continues to stay under pressure and is a major concern for the IOTG business. Also, impending global recession is likely to have affected IOTG end markets, especially retail and industrial.

The Zacks Consensus Estimate for IOTG revenues currently stands at $704 million, which indicates decline of 30% from the prior-year quarter’s reported figure.

NSG division’s performance is likely to have benefited from continuing improvements in NAND pricing trends and strength in memory vertical owing to cloud storage demand.

Notably, the Zacks Consensus Estimate for NSG revenues is currently pegged at $1.479 billion, which indicates improvement of almost 14.7% from the prior-year quarter’s levels.

However, PSG segment is expected to report a decline in revenues. The Zacks Consensus Estimate for PSG revenues currently stands at $487 million, suggesting decline of 3.9% from the prior-year reported figure.

Weakness in demand from embedded and communications segments are likely to have negative impacted the segment’s top line, offsetting strong demand in cloud and enterprise verticals.

Uptick in PC Shipments Likely to Have Favored CCG Segment

Intel’s Client Computing Group (CCG) segment represents its PC centric business. Notably, Intel bundles PCs, notebooks, 2-in-1s, tablets and other computing devices under the Client Computing Group or CCG segment.

Improving trend in PC shipments in the third quarter is likely to have benefited CCG segment revenues. Per IDC report, PC shipments grew 14.6% to 81.3 million in the third quarter of calendar year 2020. Also, increase in gaming activity is expected to have driven the segment as its latest Core H and S processors witness incremental adoption.

Moreover, new design wins for its first 10-nanometer (nm) mobile CPU — Ice Lake — is likely to have been a tailwind for Intel, currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

However, stiff competition in commercial PC business, and headwinds from 7 nm delay, are likely to have a negative impact on the segment’s revenues.

Markedly, the Zacks Consensus Estimate for CCG is currently pegged at $9.16 billion, indicating a deterioration of 5.7% from the year-ago reported figure. Further, the consensus estimates for CCG-Platform revenues stands at $8.26 billion, suggesting decline of 1.4% from the year-ago reported figure.

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