Intel (INTC) Q1 Earnings & Revenues Beat Estimates, Stock Down
Intel INTC reported first-quarter 2021 non-GAAP earnings of $1.39 per share, which beat the Zacks Consensus Estimate by 20.9%. However, the bottom line declined 1% on a year-over-year basis.
Revenues totaled $19.673 billion, which surpassed the consensus mark by 9.3%. However, the top line fell nearly 1% on a year-over-year basis.
In spite of better-than-expected first-quarter results, shares of the company are down 2.7% in the pre-market trading on Apr 23. The downside might have been caused due to a 20% decline in revenues from Data Center Group or DCG segment in the first quarter of 2021 along with higher research and development expenses that put pressure on quarterly operating margin.
Intel Corporation Price, Consensus and EPS Surprise
Intel Corporation price-consensus-eps-surprise-chart | Intel Corporation Quote
Intel stock, which carries a Zacks Rank #4 (Sell), has returned 5.6% in the past year against the industry’s rally of 52.5%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Markedly, Intel under new CEO Pat Gelsinger remains optimistic regarding its integrated device manufacturing (IDM) 2.0 strategy. The chipmaker recently outlined an extensive strategy bolster its IDM model.
Intel’s ambitious turnaround plan includes the formation of a new separate business division, Intel Foundry Services (“IFS”). With IFS, Intel is aiming to become a key provider of foundry capacity in the United States and Europe to capitalize on the increasing worldwide demand for semiconductor manufacturing. In the first quarter conference call, the company added that it is in talks with more than 50 potential customers for its IFS business.
Intel also had announced a $20-billion investment to set up two factories (fabs) at its Ocotillo campus in Chandler, AZ. The company is planning to expand to other locations as well.
Segment Revenue Details
Client Computing Group or CCG (53.9% of total revenues) represents Intel’s PC-centric business. The company bundles PCs, notebooks, 2-in-1s, tablets and other computing devices under the Client segment, which aids comparison with the PC market numbers provided by IDC and Gartner.
Revenues were up 8% on a year-over-year basis to $10.605 billion. Solid notebook demand driven by remote working and online learning trends triggered by COVID-19 contributed to the top line. Higher demand for WiFi and Thunderbolt connectivity solutions also contributed to the top line.
Notably, Intel is adding wafer capacity to boost PC unit volumes in a bid to meet market demand for 10 nm products.
Platform revenues increased 10% year over year to $9.617 billion. Adjacencies revenues fell 7% from the year-ago quarter to $988 billion due to modem production ramp down and divestiture of home gateway business to MaxLinear MXL. Notably, CCG adjacencies include modem, connected home products, wireless communications and wired connectivity.
While notebook platform volumes increased 19% year over year, desktop platform volumes declined 7%.
PC volumes grew 38% on a year-over-year basis. Further, Notebook’s average selling price (ASP) declined 23% year over year on account of increase in volumes across consumer entry and education segments. Desktop ASP also declined 5%.
The company shipped Tiger Lake-H and Rocket Lake processors for desktops and notebooks in the first quarter.
Data Center Group or DCG (28.3%) revenues declined 20% year over year to $5.564 billion due to negative impact of the pandemic on enterprise and government spending as well as cloud inventory digestion.
Platform revenues were down 25% year over year to $4.811 billion. Adjacencies rose 33% from the year-ago quarter’s levels to $753 million.
DCG Platform unit volumes were down 13% year over year and ASP declined 14%.
Cloud service providers or CSP revenues declined 29% year over year. Revenues from Enterprise & Government slumped 20%. However, revenues from Communication service provider rose 5%.
Recently, Intel also launched third-generation Intel Xeon Scalable processors (dubbed as Ice Lake), which are based on 10 nanometer (nm) process technology. These processors are optimized for workloads across high performance computing (HPC), hybrid cloud, 5G and intelligent edge. Intel noted that it was shipping Ice Lake processors to more than 30 customers that included major cloud providers, enterprise and HPC customers.
Management is optimistic on growing popularity of latest Alder Lake processors for mobile and desktop PCs, and Sapphire Rapids for the data center. Both the products, currently sampling to customers, leverage enhanced SuperFin process technology and various architectural improvements.
The chipmaker also stated that it was on track to ship Alder lake processors in the second half of 2021. Also, Sapphire Rapids is expected to “reach production around the end of this year, and ramp in the first half of 2022”, stated Intel at the first quarter earnings conference call.
Intel also teamed up with Alphabet’s GOOGL Google Cloud to work on newer solutions to aid communication service providers speed up 5G deployment across various network and edge locations.
The chipmaker’s Habana AI accelerators and Intel Xeon Scalable processors are also being leveraged by University of California for the new Voyager supercomputer.
Markedly, Intel also added that it achieved Amazon Web Services (“AWS”) High Performance Computing Competency status. AWS is the cloud computing arm of Amazon AMZN and one of the dominant players in the cloud space.
Internet of Things Group or IOTG revenues increased 4% from the year-ago quarter to $914 million due to higher demand in retail and industrial segments.
Mobileye revenues improved 48% on a year-over-year basis to $377 million, courtesy of increasing proliferation of ADAS and improvement in automotive production volumes. The company cliched eight new design wins in the first quarter.
Mobileye recently announced that its self-driving system known as Mobileye Drive will power Udelv’s next-generation of electric autonomous delivery vehicles (ADV), dubbed — Transporters.
Mobileye further added that the commercial operations are expected to begin from 2023 and the companies are targeting to produce overall 35,000 Transporters by 2028
Total Internet of Things revenues (6.6% of total revenues), comprising IOTG and Mobileye, were up 13.5% year over year to $1.29 billion.
Non-Volatile Memory Solutions Group or NSG (5.6%) revenues dipped 17.3% year over year to $1.107 billion on lower ASPs.
Programmable Solutions Group or PSG (2.5%) revenues slumped 6% from the year-ago quarter’s levels to $486 million, due to enterprise and cloud inventory digestion.
Intel also has a residual segment, All Other (3.1%), which includes results of operations from other adjustments. The segment reported revenues of $620 million compared with $66 million in revenues reported in the year-ago quarter.
Notably, DCG, IOTG, NSG, PSG, Mobileye and All Other business units form the crux of Intel’s data-centric business model. Revenues from the data-centric businesses were $9.068 billion (46.1% of total revenues), down 9.8% collectively on a year-over-year basis.
Margins
Non-GAAP gross margin in the reported quarter was 58.4%, down 610 basis points (bps) on a year-over-year basis.
Non-GAAP Research & development (R&D) expenses, and Marketing, General & Administrative (MG&A) expenses increased 2% year over year to $4.8 billion.
Non-GAAP operating margin contracted 670 bps on a year-over-year basis to 32.8%. This can be attributed to contraction in gross margin and increasing expenses.
Segment Operating Margin Details
For the first quarter of 2021, CCG operating income came in at $4.12 billion, down 2% from the year-ago quarter. The contraction was caused by higher unit costs pertaining to the production ramp up of 10 nm products and higher R&D expenses.
DCG operating income stood at $1.273 billion down 64% from the prior year quarter owing to transition to 10 nm products and higher R&D expenses (especially toward Xeon ramp up).
IOTG operating income came in at $212 million, down 13% year over year.
Mobileye’s operating income of $147 million increased 67% year over year, owing to recovery witnessed in the automotive space.
NSG group reported operating income of $171 million against operating loss of $66 million in the year-ago quarter.
PSG operating income of $88 million slumped 9.3% from the year-ago quarter.
All Other segment reported a loss of $2.317 billion compared with a loss of $1.041 billion reported in the year-ago quarter.
Balance Sheet
As of Mar 27, 2021, cash and cash equivalents, short-term investments and fixed-income trading asset balance were $22.4 billion compared with $23.89 billion as of Dec 26, 2020.
Total debt as of Mar 27, 2021, was $35.88 billion compared with $36.4 billion as of Dec 26, 2020.
In the first quarter, the company paid out dividends worth $1.4 billion. Markedly, the chipmaker repurchased shares worth $2.4 billion balance in first-quarter 2021, thereby completing the planned $20.0-billion share repurchases announced in October 2019.
Management added that going forward the company will undertake smaller share repurchases programs as it focuses on investments across board to support growth.
In the first quarter, the company generated $5.5 billion in cash from operations, up from $9.9 billion in the fourth quarter.
Guidance
Management noted that 2021 outlook excludes the NAND business. For second-quarter 2021, Intel expects non-GAAP revenues of $17.8 billion. The Zacks Consensus Estimate is currently pegged at $17.91 billion.
In the second quarter, management expects strong demand for PCs to continue, while data-centric business is projected to improve owing to momentum in the enterprise and government portion of the DCG business.
Non-GAAP gross margin is anticipated to be around 57% for the second quarter.
Non-GAAP earnings are expected to be $1.05 per share. The Zacks Consensus Estimate is currently pegged at $1.09.
For 2021, Intel now expects revenues to be around $72.5 billion compared with $72 billion projected earlier in March 2021. The Zacks Consensus Estimate is currently pegged at $73.1 billion.
Non-GAAP earnings are expected to be $4.60 per share compared with $4.55 per share projected earlier in March 2021. The Zacks Consensus Estimate is currently pegged at $4.58 per share.
Non-GAAP gross margin is anticipated to be around 56.5% for the 2021. Management expects gross margin to be negatively impacted in the second half of 2021 owing to increased R&D costs as well as higher 7-nm start-up costs and supply constraints across industry.
Capital spending for the year is expected in the range of $19-$20 billion, while non-GAAP free cash flow is now projected to be $10.5 billion for 2021.
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