On Thursday, semiconductor giant
posted strong fourth-quarter and full-year results after the market
close. Surprisingly, however, shares dropped 9% the following day
Intel Q4 Earnings: Another Beat on Good
What was the reason for such a sharp drop in response to a
report that actually exceeded Wall Street's expectations?
Investors reacted adversely to the fiscal first-quarter 2016
guidance. Intel expects to generate revenues of $14.0 billion due
to the uncertain macroeconomic environment, predominantly in China
Making things worse, Intel stated that gross margins - one of
its closely watched parameters - would fall to its lowest in
Intel expects GAAP gross margins to plunge to 58%, +/- a couple
of points, down 6.3 percentage points. It expects non-GAAP margins
to be 62%, +/- a couple of points.
Why the Weak Outlook?
Intel blamed the continued slump in demand for personal
computers for the weak first-quarter sales estimates.
The company took into account the revenues from the purchase of
technology company Altera, as well as a somewhat weak performance
by its chip business for server computers.
While Intel still derives the bulk (59%) of its revenue from the
computing market, it is making advancements in areas with greater
potential. These areas would be data center, IoT and NAND.
Combined segment revenue grew 3.9% sequentially and 6.0% year
over year and contributed over 34% of total profit. Not exceptional
of course but not too bad either considering the changing mix
toward new segments like cloud computing, IoT and NAND and the fact
that the numbers aren't perfect because Intel doesn't break out its
memory segment yet and instead clubs some expenses with it.
Management said, however, that this group contributed 40% of
revenue and 60% of operating profit in 2015, which speaks volumes
for the diversification strategy.
Overall computing units are on a decline, consistent with
unfavorable macro in Asia and China and PC market concerns, but
improving ASPs and mix are positives. Mobility costs will be
reduced by $800 million through the year. There is no channel
stuffing according to management, which is another positive.
Intel is targeting more devices at various price points which is
an offset to margin expansion. As long as this business remains
stable (last quarter really wasn't too bad) and the other segments
grow, Intel results won't disappoint.
Guidance was okay once you take out the one-time items, so the
sell-off seems like an over-reaction.
Capital spending is spiking this year as may be expected because
Intel will start production on 10nm, 3D NAND and 3D XPoint.
The chip industry, as a whole, bore the brunt for the guidance
given by Intel. Competitor Advanced Micro Devices (AMD) plunged
nearly 10% following the news.
We, however, have three alternative semiconductor stocks which,
unlike Intel, look quite promising right now. This is indicated by
rising estimate revisions as well as solid growth stats, which
suggest that any of the four stocks discussed below may serve as
better alternatives than Intel right now:
NVIDIA Corporation designs, develops and markets a complete
family of award-winning 3D graphics processors, graphics processing
units and related software that set the standard for performance,
quality and features for every type of desktop personal computer
user, from professional workstations to low-cost computers.
The company has an Expected EPS growth rate of 8.90%.
The Zacks Rank #1 (Strong Buy) stock received 1 positive
estimate revision over the last 7 days, for fiscal 2017. The
company has received no negative estimate revision over the last 60
Greatbatch is a leading developer and manufacturer of critical
components used in implantable medical devices and other
technically demanding applications.
The company has an Expected EPS growth rate of 15.00%.
Greatbatch sports a Zacks Rank #1 (Strong Buy) and received 2
positive estimate revisions for the current year, over the last 30
days. The company received no negative estimate revision in the
last two months.
The Zacks Consensus Estimate climbed 14.8% in the last 30 days
to its current level of $3.41 a share for the current year.
M/A-Com Technology Solutions Holdings, Inc.
M/A-COM provides analog semiconductor solutions for wireless and
wireline applications across the RF, microwave and millimeterwave
The company has an Expected EPS growth rate of 21.77%.
M/A-COM is a Zacks Rank #1 stock and, over the past 30 days, has
received 2 positive estimate revisions for the current year. The
company has received no negative estimate revision in the last two
The Zacks Consensus Estimate climbed 8.63% to its current level
of $1.51 a share for the current year.
MaxLinear provides radio-frequency analog and mixed signal
semiconductor SoC solutions for broadband communication
applications offering small silicon die-size, and low power
The company has an Expected EPS growth rate of 17.50%.
Over the past one month, this Zacks Rank #1 stock received 1
positive estimate revision for the current year. The company has
received no negative estimate revisions in the last 60-day
The Zacks Consensus Estimate climbed 7.61% to its current level
of $1.13 a share for the current year.
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INTEL CORP (INTC): Free Stock Analysis Report
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