Will Top-Line Decline Hinder Intel's (INTC) Q3 Earnings?
Intel Corporation INTC is scheduled to release its third-quarter 2023 results on Oct 26, after the closing bell. The company delivered an earnings surprise of 130.88%, on average, in the trailing four quarters.
This Santa Clara, CA-based semiconductor company is expected to report a top-line contraction year over year in the third quarter. Intensifying competition in multiple end markets and rising geopolitical volatility will likely impact its revenue growth. Despite management’s expectations of the easing of macroeconomic headwinds, soft demand trends and sluggish market recovery is likely to have been an overhang for the company.
Factors at Play
In the third quarter, Intel announced the commencement of the High-Volume Production of the Intel 4 Technology in its Ireland facility. It is the first instance where state-of-the-art EUV (extreme ultraviolet) technology is used for high-volume manufacturing in Europe. These recent developments in Ireland, along with additional investment initiatives in Germany and Poland, accentuate the company’s priority in establishing a semiconductor manufacturing chain across Europe.
Intel also announced the launch of glass substrates for the advanced packaging of chips. Leveraging indigenous technology, glass substrates offer distinct advantages against conventional substrates. This is likely to have cushioned the top line in the third quarter.
During the quarter, Intel inked a pivotal agreement with Tower Semiconductor Ltd. that promises to significantly impact the broader semiconductor ecosystem. The partnership underscores Intel's dedication to expanding its foundry services and manufacturing capabilities while positioning Tower for substantial growth.
Per the agreement, Tower will utilize Intel’s advanced manufacturing facility in New Mexico. With an investment of up to $300 million in equipment and assets, Tower aims to create a capacity corridor capable of supporting its customers’ rising demand for 300mm advanced analog processing. The agreement was signed following Intel’s termination of the deal to acquire Tower Semiconductor owing to a delay in regulatory approvals. These are likely to be reflected in the upcoming results.
In the quarter-under review, Intel announced that it collaborated with Synopsys to expand their long-standing intellectual property (IP) and EDA (electronic design automation) partnership. Utilizing the combined expertise, the collaboration is facilitating the development of a portfolio of IP on Intel 3 and Intel 18A for Intel’s foundry customers. Intel also teamed up with Flapmax, a leading artificial intelligence (AI) company, to craft sustainable AI native digital solutions. The collaboration aims to augment AI accessibility to underserved communities in Africa.
During the quarter, Ericsson selected Intel’s 18A process and manufacturing technology for the advancement of next-generation 5G infrastructure. Per the deal, Intel will manufacture custom 5G SoCs (system-on-chip) for Ericsson. It will also offer the 4th Gen Xeon Scalable processor-based platforms for Ericsson’s Cloud RAN solutions that will empower service providers with greater network capacity and scalability and ensure power efficiency. These developments are likely to have supported the top line during the third quarter.
However, intense market volatility, depleting customer inventory levels and the persistence of business uncertainties have continued to be major headwinds for the company. Its dependence on international revenues exposes it to forex volatility. Rising geopolitical tension may also impact its operations. Fierce competition in the server, storage and networking markets is also straining margins.
Our estimate for revenues from Client Computing Group is pegged at $6,728.2 million, suggesting a 17.2% year-over-year decline. Our estimate for net sales from Datacenter and AI Group is pegged at $4,211.4 million, indicating a decline from $4,255 million reported in the year-ago quarter. Per our estimate, revenues from Network and Edge Group are projected to be $1,637.3 million, implying a 23.2% year-over-year decline.
For the September quarter, the Zacks Consensus Estimate for total revenues is pegged at $13,479 million, which indicates a decrease from the year-ago quarter’s reported figure of $15,338 million. The consensus estimate for adjusted earnings per share stands at 21 cents, suggesting a sharp decline from 59 cents reported in the prior year.
Earnings Whispers
Our proven model predicts a likely earnings beat for Intel this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is exactly the case here.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +12.98%. The Most Accurate Estimate is pegged at 24 cents, while the Zacks Consensus Estimate stands at 21 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Intel Corporation Price and EPS Surprise
Intel Corporation price-eps-surprise | Intel Corporation Quote
Zacks Rank: Intel currently has a Zacks Rank #2.
Other Stocks to Consider
Here are some other companies you may want to consider, as our model shows that these, too, have the right combination of elements to post an earnings beat this season:
Alphabet Inc. GOOGL is set to release quarterly numbers on Oct 24. It has an Earnings ESP of +0.89% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Motorola Solutions, Inc. MSI has an Earnings ESP of +3.58% and carries a Zacks Rank of 3. The company is set to report quarterly numbers on Nov 2.
ON Semiconductor ON has an Earnings ESP of +1.00% and carries a Zacks Rank of 2. The company is set to report quarterly numbers on Oct 30.
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