Intel (INTC) Beats On Q1 Earnings, Raises FY17 Guidance
Zacks Investment Research | Apr 27, 2017 11:25PM ET
Intel Corp (NASDAQ:INTC) reported first-quarter 2017 non-GAAP earnings of 66 cents per share, which surged 22.2% from the year-ago quarter but declined 16.5% sequentially. Earnings per share (EPS) beat the Zacks Consensus Estimate by a penny.
The strong year-over-year earnings growth was driven by 7.2% increase in revenues, which totaled almost $14.80 billion but missed the Zacks Consensus Estimate of $14.81 billion. Revenues decreased 9.6% sequentially.
The robust year-over-year revenue growth came on the back of impressive results from the Client Computing, Data Center and Internet-of-Things groups, which contributed to almost 87.4% of total revenue.
Intel Corporation Price, Consensus and EPS Surprise
Semiconductor General industry on a year-to-date basis. While the company’s shares lost 0.9%, the industry gained 4.1%.
We believe that first-quarter results demonstrated a turnaround in the company’s businesses after a long time. The improving PC shipment data – as per Gartner and IDC – is positive for the company. The upcoming launch of Skylake is anticipated to benefit data center results in the second half, which management believes will help to drive high-single digit revenue growth in 2017.
Intel revised up 2017 revenue and EPS outlook based on strong average selling price (ASP) in the Client Computing Group (although expected to decline slightly as compared with the first-quarter growth) and growth in the memory business. ASPs are expected to increase in the data center group through the rest of 2017.
Further, anticipated improvement in cost structure and lower spending, primarily due to improving operational efficiency will aid in expansion of margins going forward. Additionally, aggressive share buyback will boost the bottom line in 2017.
Despite the revenues miss and intensifying competition in most of the markets, we expect that these aforesaid factors will help Intel stock to rebound in the rest of 2017.
Segment Revenue Details
Client Computing Group (53.9% of revenues) – Intel bundles PCs, notebooks, 2-in-1s, tablets and other computing devices under the Client segment, which actually helps comparison with the PC market numbers provided by IDC and Gartner.
Revenues increased 5.7% year over year but plunged 12.6% sequentially to almost $7.98 billion. The growth rate was encouraging as it continued to beat PC market trends. In fact, management still expects a mid-single digit percentage decline in the PC unit total addressable market (TAM).
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On a year-over-year basis, platform volumes decreased 4%, while platform ASP was up 7%. Desktop platform volumes were down 7% and desktop platform ASP was up 2%. Notebook platform volumes were up 1% and notebook platform ASP was up 7%. Sequentially, platform volumes decreased 13%, while platform ASP increased 2%.
Data Center Group (28.6% of revenues) – Revenues increased 5.8% year over year but declined 9.3% sequentially to $4.23 billion. Platform volumes decreased 1%, while platform ASP was up 6% on a year-over-year basis. Sequentially, platform volumes decreased 7% and platform ASP fell 3%.
Per Intel, the cloud service provider revenues advanced 18%. Enterprise was down 3%, while non-CPU adjacencies grew more than 20% across all of the segments.
Management stated that it is on track to launch next-generation Skylake microprocessor, which is expected during mid-summer. The new processor is anticipated to deliver two-times improved performance in floating-point operations per clock over the current generation, which will support high performance computing (HPC) and artificial intelligence (AI) workloads.
Notably, the company recently formed Artificial Intelligence Product Group, which comprises all AI hardware and software assets along with AI engineering expertise.
We believe that growing demand for server chips that are used in the data centers from the cloud-based service providers like Amazon.com (NASDAQ:AMZN) , Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) is a key catalyst for Intel.
Internet of Things Group (4.4% of revenues) – Revenues jumped 10.8% from the year-ago quarter but declined 0.7% quarter over quarter to $721 million. The growth was backed by strength in industrial, video and automotive applications.
During the quarter, Intel announced its plan to acquire Israel-based Mobileye (NYSE:MBLY), an autonomous vehicle technology provider, for a whopping $15.3 billion in an all-cash deal. The deal will help the company to fast penetrate the $70 billion autonomous driving systems, data and services market. (Read More: .
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