Factors You Must Note Ahead of Intel's (INTC) Q3 Earnings

Zacks Equity Research
·5-min read

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

The company expects third-quarter revenues of $18.2 billion.

In the second quarter earnings conference, management noted that both data-centric and PC-centric businesses are anticipated to decline in mid-single digits on a year-over-year basis in the third quarter.

The company anticipated decline in the PC total addressable market (TAM) in the third quarter, as softness in desktop demand and weakness in economy is likely to offset spike in coronavirus-led demand.

The Zacks Consensus Estimate for revenues is pegged at $18.21 billion, indicating a decline of 5.1% from the year-ago quarter.

For the third quarter, Intel anticipates non-GAAP earnings of $1.10 per share. The Zacks Consensus Estimate for earnings is pegged at $1.10, stable in the past 30 days. The figure suggests fall of 22.5% from the prior-year reported figure.
 

Intel Corporation Price and EPS Surprise

Intel Corporation Price and EPS Surprise
Intel Corporation Price and EPS Surprise

Intel Corporation price-eps-surprise | Intel Corporation Quote

Notably, the company has beat earnings estimate in each of the trailing four quarters, the average surprise being 15.3%.

Factors Likely to Have Influenced Q3 Performance

Impending global recession is likely to have affected Intel’s Internet of Things Group (IOTG) end markets, especially retail and industrial, in the quarter under review. Further, lower automotive production due to lockdowns and shelter-in-place guidelines, remained a concern.

Nevertheless, Mobileye’s new design wins and increasing proliferation of IoT may have contributed to Intel’s third-quarter performance.

Intel’s third-quarter results are likely to reflect strength in its data center business, courtesy of growing adoption of cloud-based solutions, across mobile compute, and network infrastructure for 5G, triggered by the coronavirus crisis-induced work-from-home wave.

Moreover, coronavirus-induced work-from-home and online learning wave might have bolstered sales of processors utilized in enterprise laptops and data center servers. This, in turn, is anticipated to have contributed to third-quarter revenues.

Notably, encouraging trend in PC shipments in the third quarter, driven by increased demand and improvement in the supply chain, is likely to have benefited Client Computing Group (CCG) segment revenues. Per IDC data, PC shipments in third-quarter 2020 improved 14.6% year over year to 81.3 million units.

Besides, robust adoption of Xeon processors, which are integrated with Optane DC Persistent Memory solution may have contributed to the top line in the quarter to be reported. Strong momentum for 10 nanometer (nm) mobile CPU bodes well.

Further, higher Wi-Fi and modem sales and solid notebook demand remain tailwinds. Notably, Intel’s Optane DC Persistent Memory modules are being leveraged by the likes of Oracle ORCL, SAP, Google, Microsoft MSFT, Baidu and Alibaba.

Additionally, the chipmaker’s non-volatile memory business is likely to have gained from improvement in NAND pricing trends and Optane bit growth. Also, growing demand for server solid state drives (SSD) in datacenters, which has been driving growth in the NAND market, might have benefited the third-quarter performance.

However, sluggish data center demand across enterprise and government end-markets remains a woe. Moreover, 7 nm delay is a headwind.

Besides, growing clout of Advanced Micro Devices’ AMD second generation of its EPYC processors is likely to have created pricing pressure and limited margin expansion.

Also, increasing expenses on accelerated ramp up of 10 nm products and decline in platform revenues is anticipated to have impacted third-quarter profitability.

Notable Developments in Q3

During the quarter, Intel, which currently carries a Zacks Rank #2 (Buy), rolled out its 11th generation core processor, dubbed “Tiger Lake” which it claims is best suited for thin and light laptops. The latest processor features Intel Iris Xe graphics that offer maximum frequency of 1.35 GHz. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The semiconductor giant also introduced two new processors — Intel Atom x6000E Series, and Intel Pentium and Intel Celeron N and J Series processors — that specifically have improved IoT capabilities to accelerate edge computing. These processors belong to Intel’s 11th generation core processor series.

Incremental adoption of latest Core vPro and Lakefield processors, along with Tiger Lake series offerings, is likely to have contributed to third quarter revenues.

Further, Mobileye deal wins continued in the quarter.

The chipmaker announced that Mobileye’s SuperVision surround-view advanced driver-assistance system (ADAS) will power Geely Auto Group’s Lynk & Co brand’s highly awaited premium electric vehicle (EV) — Zero Concept.

Markedly, Geely Auto Group is one of the leading auto manufacturers based out of China. Mobileye’s EyeQ5 system-on-chip (SoC) combined with Geely’s accelerated production expertise will aid the automaker to roll out a new suite of advanced driver-assist features to consumers as early as fall 2021.

Also, during the quarter under review, Mobileye announced strategic collaboration with WILLER, one of the leading transportation operators across Taiwan, Japan and the Southeast Asian region, in a bid to introduce an autonomous robotaxi service. The service will commence in Japan, wherein the companies will co-develop the testing and deployment technology of autonomous transportation solutions.

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