Intel (Nasdaq: INTC) was as much as 10% lower following its second-quarter earnings report due to weaker than expected guidance for the next quarter and delays in the production of its next-generation chips. It comes as a surprise as most semiconductor stocks which reported so far have been raising guidance due to strong demand.
Inside the Numbers
The company beat earnings and revenue in the quarter with $1.23 earnings per share compared to analysts' expectations of $1.11 per share. Revenue also beat at $19.73 billion vs $18.55 billion expected. In the same quarter last year, Intel reported $1.06 per share and $16.51 billion in sales which indicates significant growth over the last year despite the coronavirus.
While the backward-looking numbers impressed, forward-looking measures disappointed. Intel projected $1.10 in earnings for the third quarter which was below analysts' forecast of $1.14 per share. Intel's revenue forecast for the next quarter at $18.2 billion was slightly higher than analysts' forecast of $17.9 billion.
Intel also updated its full-year guidance for $4.85 per share and $75 billion in revenue. These figures were in-line with analysts' estimates of $4.81 per share and $73.8 billion in sales. It wasn't much different than its initial guidance from January, before the coronavirus when it forecast $5 per share and $73.5 billion of revenue.
More than guidance, the sell-off in Intel's stock is primarily due to a delay in the release of its 7 nanometer, high-performance transmitter chips which is releasing to catch up to AMD (Nasdaq: AMD). The product was set to launch in 2021. As a result, AMD's stock was 8% higher.
Client Computing, which makes chips for PCs, is the company's biggest revenue center. In the quarter, it brought in $9.5 billion and grew 7%. The Data Center Group, which makes chips for servers and cloud providers, brought in $7.12 billion and grew 43%. It's likely to displace Client Computing as Intel's biggest source of revenue.
Stock Price
Even with the stock's 10% decline, it will be 25% above its March lows. The stock had been underperforming going into earnings as it topped out in early June. The weakness in Intel's stock is somewhat puzzling given the strength in technology, the strength in the semiconductor sector, and its leading position in servers and cloud which are the fastest-growing areas in tech.
Further, the stock is growing 20% with 30% profit margins and has a price to earnings ratio of 12. Compare this to the S&P 500 (NYSE: SPY) which has a price to earnings ratio of 28, 3% sales growth, and 10% profit margins. On top of this, the company pays a 2.2% dividend which is above the S&P 500's yield of 1.8%.