Intel (INTC) Q3 Earnings: What to Expect

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Which version of Intel (INTC) will the market see on Thursday? Shares of the chip giant have fallen 16% over the past six months, compared to 7% rise in the S&P 500 index. The stock is down about 15% since the company reported its Q1 results in April. Is now a good time to buy?

The chip manufacturer is set to report third quarter fiscal 2021 earnings results after the closing bell Thursday. While Intel has surpassed the Street’s revenue estimates in ten straight quarters, investors have grown frustrated about the company’s lack of progress in key business segments, particularly the Data Center Group and Client Computing Group which accounts for a respective 30% and 50% of the company’s quarterly revenue. The company's Q2 results, reported in July, did little to excite investors about the long-term growth prospects.

Weaknesses in the datacenter group and client computing group for Intel have been magnified by the successes and market share gains from rivals AMD (AMD) and Nvidia (NVDA) in several important chip developments. Meanwhile, the company’s self-inflicted wounds has caused once-prominent customers such as Apple (AAPL) and Microsoft (MSFT) to start designing their own chips to replace Intel’s offerings. This comes on the heels of Amazon (AMZN) two years ago opting to use its own ARM-based processors.

These factors, among others, have pressured Intel shares, which have underperformed the S&P 500 index in the past year and three years, producing gains of 1.13% and 22%, respectively, compared to S&P 500 gains of 28% and 62%, respectively. While CEO Pat Gelsinger has done a decent job changing the negative narrative surrounding the company, Intel on Thursday must prove the naysayers wrong, while selling the upside potential of the many growth initiatives it can still achieve.

For the quarter that ended September, the Santa Clara, Calif.-based company is expected to earn $1.11 per share on revenue of $18.24 billion. This compares to the year-ago quarter when earnings were $1.11 per share on revenue of $18.33 billion. For the full year, ending in December, earnings are expected to decline 6% year over year to $4.79 per share, while full-year revenue of $73.6 billion would decline about 5.5% year over year.

The expected year-over-year declines in revenue and profits are a couple of reasons Intel wants to re-invent itself. Aside from announcing several new initiatives, including IDM 2.0, Intel doubled down on its willingness to boost manufacturing capacity. Intel’s ability to execute, however, has been a major issue at Intel over the past several quarters. However, in the near-term, Intel is poised to beat top- and bottom-line estimates given the easier comparison that are coming up, starting int he just-ended quarter.

The company guided for Q3 revenue of $19.1 billion which would translate to year-over-year growth of almost $1 billion. And this is despite losing business from Apple. Q3 gross margin is expected flat at 53%, though the decline is expected to be more meaningful compared to Q2. In the Q2 the company reported revenues that beat estimates by $700 million, despite revenue only grew 2% year over year. The Client Computing Group grew revenues 6% year over year, but the Data Center Group struggled mightily.

Investors will want to see whether these areas show enough improvement to revive the stock. Still, given the degree of pessimism still priced in the stock, Intel offers compelling long-term value, especially when factoring in the company’s 2.60% annual dividend yield.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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