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Intel Overcomes Industry Headwinds With Record Results

Intel INTC reported third-quarter results significantly ahead of its guidance, driven by broad-based outperformance in the firm's data-centric segments. Despite a host of issues marring the semiconductor industry, the firm increased its 2019 revenue guidance to $71 billion from $69.5 billion noted last quarter. We continue to anticipate competitive challenges to impact Intel's server and desktop CPU strongholds over the next few quarters, as AMD launches numerous products on TSMC's 7-nanometer process technology. However, we believe Intel has been adroitly navigating the headwinds, via concerted efforts to reign in spending while investing in critical process and design technologies (10- and 7-nm, 5G, Artificial Intelligence, and automotive). Intel's board also increased the share buyback authorization, with management expecting to repurchase $20 billion in shares over the next 15 to 18 months. Shares were up during after-hours trading, though they continue to trade in 4-star territory relative to our unchanged $65 fair value estimate. We reiterate our view that shares look attractive at current levels for wide-moat Intel.

Intel's third-quarter revenue was $19.2 billion, which was flat year over year but $1.2 billion higher than management's guidance. Although PC-centric revenue was down 5% year over year, data-centric sales grew 6%. PC volumes were down 10% year over year, which we partially attribute to the ongoing shortages Intel has been facing as well as competition from AMD (particularly in desktops). However, Intel partially offset this weakness with ASP strength, as notebook and desktop ASPs grew 4% and 3%, respectively. Eighteen PC systems (all laptops) powered by Intel's 10-nm Ice Lake processors have shipped to date, with 30 total designs to be launched this year. Data center group, or DCG, sales grew 4% year over year, as cloud returned to growth after a few quarters of inventory digestion.


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