Data-center and PC revenue will be closely watched as Intel looks for a new leader
Intel is looking for a new CEO.
Intel Corp. needs strong gains in its core personal-computer business as well as its server segment to overcome uncertainties about management succession and its manufacturing processes in the wake of a sudden shake-up.
Intel INTC, -2.91% is scheduled to report second-quarter earnings after the bell Thursday, a day after investors get a clearer view of results from Advanced Micro Devices Inc. AMD, +0.44% which may affect the view of Dow-component Intel. Coinciding with a rare quarterly surge in PC sales, some analysts are speculating that AMD’s 7nm chip-making processes are now on par or pulling ahead of Intel’s 10nm processes.
Intel must do something it has never done after inglorious exit for CEO
The end of the quarter was marred by the sudden departure of Chief Executive Brian Krzanich over violations of the company’s non-fraternization policy, throwing into question who will helm the chip giant going forward on a more permanent basis, and eroding the confidence of some analysts. They will be looking for big gains from Intel to tide the company over until a new leader can be chosen and install a plan to move forward.
Data-center group, or DGC, revenue is expected to surge 28% to $5.61 billion, according to FactSet data. That contrasts with more subdued gains in Intel’s largest segment, client-computing or traditional PC, where analysts expect revenue to rise 3.3% to $8.48 billion from the year-ago period. Nonvolatile memory solutions revenue is expected to grow 26% to $1.1 billion, compared with the year-ago period. “Internet of Things,” or IoT, revenue is expected to grow 18% to $853 million.
We expect lively conversation to centre on recent internal managerial turmoil due to Brian Krzanich’s sudden resignation as CEO and management succession plan, further updates on the delayed 10nm process, a newly contentious discussion of 2019/20 iPhone modem positioning, and discussion of the key drivers of the company’s recent very strong results in DCG contrasted with uncertainty in the medium-term server road map. Frankly, there are so many medium term questions, but who is going to answer them with any authority?
What to expect
Earnings: Of the 34 analysts surveyed by FactSet, Intel on average is expected to post adjusted earnings of 97 cents a share, up from the 81 cents a share expected at the beginning of the quarter thanks to an updated forecast Intel provided with the news of Krzanich’s exit. Intel had forecast 80 cents to 90 cents a share, but said in the June release that it expects adjusted earnings of 99 cents a share and revenue of approximately $16.9 billion. The company also promised an updated full-year forecast along with its final earnings report. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of $1.00 a share.
Revenue: Wall Street expects revenue of $16.78 billion from Intel, according to 34 analysts polled by FactSet. That’s up from the $15.55 billion forecast at the beginning of the quarter, after the updated guidance; Intel had predicted revenue of $15.8 billion to $16.8 billion. Estimize expects revenue of $16.95 billion.
Stock movement: Intel shares initially rallied following the company’s last earnings report but cooled as some analysts questioned if Intel could follow through on the momentum. Intel shares are currently down about 1% since the last earnings report, compared with a 5.2% gain on the S&P 500 index SPX, -0.30% a 3% advance on the Dow Jones Industrial Average DJIA, +0.44% and a 10% rise on the tech-heavy Nasdaq Composite Index COMP, -1.01% over the same period.
What analysts are saying: Of the 42 analysts who cover Intel, 25 have buy or overweight ratings, 13 have hold ratings and four have sell or underweight ratings, with an average price target of $59.17.
Instinet analyst Romit Shah, who has a neutral rating and a $55 price target on Intel, said he expects Intel to forecast earnings and revenue above the Wall Street average for the September-ending quarter because of strength in the company’s client-computing group, or CCG, from Apple Inc. AAPL, +0.14%
“We believe that CCG alone could increase by $1 billion sequentially due in part to the baseband modem ramp at Apple,” Shah said. “Our research suggests that Intel will have 100% market share in the upcoming iPhone, higher than our previous expectation of 70% share, which should translate into $500 million of incremental revenue in each of the next two periods.”
Here's how artificial intelligence mimics the human brain
Deutsche Bank’s Ross Seymore, who has a buy and a $64 price target on Intel, expects the company to become conservative in its outlook following strong performance of data-center and client-computing groups.
“While the ongoing CEO search/transition clearly adds uncertainty (unlikely to be resolved on this earnings call), we believe Intel’s strong fundamental performance (particularly within its Data-Centric strategy) should provide more than offsetting comfort for investors,”