Intel (INTC) reports quarterly earnings after hours. Analysts expect revenue of $16.34 billion and eps of $0.87. The revenue estimate implies 1% growth sequentially. Investors should focus on the following key items:
Operating Income Margins
Intel has vowed to change from a computer-centric company to a data-centric company. It expects future top line growth to come from data-centric businesses. In the past management has lost credibility with its failed mobile strategy, but I believe management on the future of the business. For now about 85% of its revenue is derived from the Client Computing Group (“CCG”) and Data Center Group (“DCG”). This down account for the acquisition of Mobileye whose operations have been fully reflected in the previous quarter’s results. Last quarter combined revenue CCG and DCG grew about 2% Y/Y.
Revenue from CCG was flat Y/Y as platform volumes were down 7% Y/Y and average sales price was up 7%. According to Gartner PC shipments fell 3.6% Y/Y in Q3 2017 – the 12th consecutive quarter of declines. Continued declines in PC shipments will likely keep a lid on CCG sales. Secondly, Intel has had some success in taking share away from Qualcomm (QCOM) in mobile devices. Whether a burgeoning relationship with Apple (NASDAQ:AAPL) can help jump-start CCG remains to be seen.
DCG grew revenue by 7%, with volume up 4% and average sales price up 2%. DCG has benefited from the explosive growth in the cloud at the expense of legacy IT services. I expect future growth to continue, albeit at a slower pace. That said, Intel’s gross margin was 62% during the quarter, slightly down from 63% in the year earlier period. Operating income margin was 32%, much higher than the 28% reported in the year earlier period. On a dollar basis operating income increased 15% to $5.1 billion.
One of the biggest drivers of operating income margin improvement was CCG whose margin increased to 41% from 37% in the year earlier period. This came despite flat revenue growth in the segment. Intel cut costs in the segment which spurred the bottom line. It underscores CCG’s importance as a cash cow to help fund acquisitions and Intel’s forays into new business lines. It also underscores the company’s continued dependence on CCG to drive bottom line results, despite publicly touting its data-centric strategy.
Security Chip Flaw Could Be An Opportunity In Disguise
Earlier this month reports surfaced of an Intel chip flaw related to bugs nicknamed Meltdown and Spectre. The bugs reportedly made working memory data in shared services or individual devices vulnerable to attack by hackers. INTC fell over 2% on the news. The thought that mountains of client data on the company’s servers could be compromised is the “train wreck” scenario. However, management headed the scare off at the pass.
Management immediately divulged to the public that the bugs were not unique to any one architecture or processor implementation. Intel then provided operating system and firmware updates, developed in collaboration with operating system vendors and industry partners. As importantly, Intel delivered transparent and timely communications to clients and investors about how it was addressing the security risk. So far I believe management passed a key test in proving it can handle potential data breaches and reassure clients that their data was secure. I expect to hear more from the earnings call about management’s progress in addressing Meltdown and Spectre.
Conclusion
I expect more dismal top line growth from Intel. Operating income growth will likely outstrip revenue growth due to operating efficiencies. INTC trades at nearly 16x earnings. I rate the stock a sell until it can jump-start both top and bottom line results.
Actor Chad L. Coleman will host Trump And The Global Economy February 6, 2018 in Brooklyn
The panel will include Christopher Townley (land baron), Reverend Conrad Tillard (activist, WHCR 90.3 FM), Wuyi Jacobs (AfrobeatRadio) and Ralph Baker, author of Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead. The event will take place at South Oxford Space in Fort Greene, Brooklyn from 6PM – 8PM. Tickets are available on Eventbrite. Come early and bring friends.
Coleman is best known for his breakout role as Tyreese in The Walking Dead and Dennis ‘Cutty’ Wise in The Wire. He currently recurs on Syfy’s The Expanse and will star in Lifetime’s upcoming biopic Michael Jackson: Searching for Neverland set to premiere May 29.
According to Ralph Baker who Helped found the event, “We are excited to work with Chad to help spread the word about Trump And The Global Economy. These are trying times we live in and the community is dependent on artists like Mr. Coleman to continue to tell our stories through their music, film, plays, books, etc. Brooklyn has a Rich, vibrant, art community. We would love for the art world and the broader community come out to network and take in what the panel has to say.”
The town hall brings together a cross-section of individuals to discuss everything from President Trump’s policies on economics, immigration, and foreign affairs, to what his election says about America. Individuals on the front lines will bring you real information about the Trump administration that impacts the community.
The most recent Trump And The Global Economy town hall took place October 24th in Fort Greene. It Featured Professor Lance Brofman, Coconut Rob (Coconut Rob Smoothies), Mr. Jacobs and Mr. Baker. The event was well-received by the community. We parsed through President Trump’s proposed tax plan and high net worth individuals could potentially game the system by shifting income around. We discussed the pros and cons of technology on workers and the economy. How will the economy and country prosper under Trump’s leadership? What’s behind the verbal sparring with black athletes, ESPN’s Jemele Hill and North Korea’s Kim Jong Un?
The June 27 2017 event included Mr. Tillard, John McLaughin, who did the polling for President Donald Trump during his presidential election, Mr. Jacobs and Mr. Baker. Trump And The Global Economy is a quarterly event and is fast becoming the “must see” event in Brooklyn.
Live Stream Available February 6, 2018 At 6PM
Live stream for the February event is below. The live stream will be active February 6th at 6PM.
