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Factors to Consider Ahead of Intel's (INTC) Q1 Earnings

Zacks Equity Research

Intel INTC is set to report first-quarter 2019 results on Apr 25.

The company’s first-quarter results are likely to benefit from Data Center Group or DCG, Client Computing Group or CCG, and MobilEye which forms the crux of its data-centric business model.The company’s Non-Volatile Memory Solutions or NSG segment is also anticipated to be a key catalyst.

However, softness in demand from China, declining trend in PC shipments and softness in NAND flash pricing trends continues to be an overhang and is likely to impact the to-be reported quarter.

Click here to know how the company’s overall Q1 performance is expected to be.

Intel Corporation Price

 

Intel Corporation Price | Intel Corporation Quote

CCG, DCG, NSG AND PSG Segmental Highlights

PC centric part of the CCG segment is expected to up in low-single digits in the first quarter on higher modem share. The company intends to unveil Intel XMN 8165 5G, its first 5G modem in second half of 2019. Additionally, the company recently introduced new 9th Gen Intel Core processors. The addition of new products and anticipated launches are likely to benefit the company in the first quarter.

The segment revenues increased 15.5% on a year-over-year basis and 17.3% sequentially to $10.23 billion in the fourth- quarter. Management noted strength in the commercial and gaming business. Notably, Notebook ASP and Desktop ASP increased 6% and 13%, respectively, in the last reported quarter. We believe, strong product mix and higher ASPs backed by customer preference are anticipated to bolster CCG operating margin in the first quarter.

Although the company gained modem share, weaker smartphone demand, sluggishness in demand from China and softness in NAND pricing is expected to impact modem demand in the to-be reported quarter.

The Zacks Consensus Estimate for CCG is pegged at $8.39 billion, indicating an improvement of 2.1% from the year-ago quarter.

Meanwhile, Data-centric business is anticipated to be down in low-single digits in the to-be-reported owing to softness in NAND pricing and sluggishness in data center demand. Management stated that data-centric businesses were up 9% collectively in the last reported quarter, primarily due to strength in cloud and communication service provider domains.

Intel’s strategy of expanding TAM beyond CPU to adjacent product lines like silicon photonics, fabric, network ASICs, and 3D XPoint memory is likely to act as a tailwind in the first quarter.

The Zacks Consensus Estimate for DCG is pegged at $5.11 billion, compared with $5.23 billion reported in the year-ago-quarter.

Intel offers Optane SSDs for clients and 3D NAND technologies, which helps in innovating solid-state drives (SSDs) and other memory products. This in turn is anticipated to bolster Intel’s NSG segment revenues in the to-be-reported quarter.

Management noted improvement in shift of the company’s data center and client SSDs to 64-layer 3D NAND, which in turn is improving cost per gigabyte. This is expected to aid segment’s margin expansion in the first quarter.

The Zacks Consensus Estimate for NSG unit stands at $923 million, compared with $1.04 billion reported in the year-ago-quarter.

Robust performance of data center and communications end markets, and strength in embedded products is expected to drive PSG’s top line. PSG's data center segment surged 50% in the last reported quarter compared with the year-ago quarter.

Intel strengthened its PSG product portfolio with eASIC buyout, by introducing the new Programmable Acceleration Card (“PAC”) with Intel Stratix 10 SX FPGA. These product rollouts are expected to impact PSG segment in the to-be-reported quarter.

The Zacks Consensus Estimate for PSG is pegged at $551 million, indicating an improvement of 10.6% from the year-ago quarter.

Zacks Rank & Key Picks

Intel currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same industry are Synopsys, Inc. SNPS, Universal Display Corporation OLED and KLA-Tencor Corporation KLAC, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Synopsys, Universal Displayand KLA-Tencoris projected at 10%, 30% and 11.2%, respectively.

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