Intel Shares Plunge on Falling Margins, Increased Competition

"We're seeing increased competition in the second half of the year, but not different levels of competition than we thought.”
Lauren MuskettOctober 23, 2020

Intel reported a weak third quarter, which barely met revenue and earnings per share estimates.

Data-centric revenue fell 10% year-over-year, with its data center group (DCG) revenue falling 7% year-over-year to $5.9 billion.

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In the DCG group, cloud revenue grew 15% year-over-year due to higher demand from work-at-home, but the enterprise and government unit recorded a decline of 47% due to a challenging macro environment.

PC-centric revenue grew 1% year-over-year to $9.8 billion due to higher demand for PCs. The average selling price (ASP) was down 6% due to an increase in entry-level education PCs.

Gross margins fell a substantial 560 basis points to 54.8%; Operating income fell 22% to $5.4 billion.

The company’s 10nm Arizona facility is fully operational and expects to ship 30% higher production volumes.

Outlook: Intel expects Q4 revenue of $17.4 billion, a non-GAAP operating margin of 26.5%, and an EPS of $1.10.

For the full-year, Intel sees an operating margin of 31.5% and operating cash flow in the range of $32.2 billion to $33 billion.

“We’re seeing increased competition in the second half of the year, but not different levels of competition than we thought. We feel good about where we are on the year. So, I would say it’s really a mix story and a very different mix than we thought going in,” said CFO George Davis.

“10-nanometer accelerated because — as it’s displacing 14-nanometer, there’s a margin impact from that. So, we think, even as we see cost initiatives that are improving the cost structure of 10-nanometer, the teams are working on the yield performance of 10-nanometer all that should show up as positive,” said George Davis.

See Intel’s earnings presentation here.

INTC shares were down 9.5% to $48.76 in the pre-market session on Friday.

This story originally appeared on Benzinga. 

© 2020 Benzinga does not provide investment advice. All rights reserved.

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