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Factors Setting the Tone for Intel's (INTC) Q4 Earnings

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Zacks Equity Research
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Intel INTC is slated to release fourth-quarter 2020 results on Jan 21, 2021.

In the third-quarter earnings conference, management anticipated PC-centric business to decline in low-single digits on a year-over-year basis, while data-centric business is projected to slump approximately 25% year over year in the fourth quarter.

Intel also expected momentum in consumer notebook PCs to continue in the fourth quarter, backed by remote working and online trends. Also, increased supply might contribute to results.

Per the preliminary results, released on Jan 13, the company expects fourth-quarter revenues and earnings per share to exceed its previous guidance provided on Oct 22, 2020.

Markedly, on Jan 13, Intel announced that it has appointed Pat Gelsinger as the company’s new CEO. Current CEO Bob Swan will be stepping down from his role on Feb 15, 2021. Additionally, the chip maker intends to provide update on its robust progress in its 7 nanometer (nm) process technology during its fourth-quarter earnings conference.

Key Q4 Estimates

For the fourth-quarter, Intel previously anticipated non-GAAP revenues of $17.4 billion. The Zacks Consensus Estimate for revenues is pegged at $17.44 billion, indicating a decline of 13.7% from the year-ago quarter.

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

For the fourth-quarter, Intel had projected 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 27.6% from the prior year reported figure.

Notably, the company has beat earnings estimate in each of the trailing four quarters, the average surprise being 11.9%.

Factors to Note

Sluggish data center demand across enterprise and government end-markets due to coronavirus crisis led weakness in data-centric businesses is likely to have affected Intel’s fourth-quarter performance.

However, growing adoption of cloud-based solutions, across mobile compute, and network infrastructure for 5G, triggered by momentum in coronavirus crisis-induced work-from-home wave, might have cushioned the anticipated decline.

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

Notably, encouraging trend in PC shipments in the fourth quarter, driven by increased demand and improvement in the supply chain, is likely to have contributed to Intel’s Client Computing Group (CCG) segment revenues. Per IDC data, PC shipments in fourth-quarter 2020 improved 26.1% year over year to 91.6 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 nm mobile CPU bodes well.

Also, incremental adoption of latest Core vPro and Lakefield processors, and Tiger Lake series offerings is likely to get reflected in the to-be-reported quarter’s revenues.

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 fourth-quarter execution.

Nevertheless, Mobileye’s new design wins and increasing proliferation of IoT and stabilizing automotive industry may have contributed to Intel’s fourth-quarter performance. Growing clout of Mobileye’s SuperVision surround-view advanced driver-assistance system (ADAS) in premium electric vehicles (EV) bodes well.

However, sluggishness across Intel’s Internet of Things Group (IOTG) end markets, especially retail and industrial, is likely to have affected revenues in the quarter under review.

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

Also, increasing expenses on accelerated ramp up of 10 nm products and improvement in 7 nm production is anticipated to have weighed on fourth-quarter profitability.

Intel currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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