Intel: Interesting Times Ahead
Ashish is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Intel (NASDAQ: INTC) reported in-line 2Q12 earnings with consolidated revenue and EPS of $13.5 billion and $0.54 versus the consensus estimates of 13.56 billion and $0.52 respectively. Its GAAP gross margin of 63.4% was above guidance of ~62.0%, decreasing 60bp sequentially. Intel Architecture Group revenue constituted a total of $12.60 billion (93% of the revenues) and was up 4% Y/Y and 5% Q/Q.
Key Takeaways:
1) PC Client Group revenue was $8.68 billion, up 4% Y/Y and up 3% sequentially. PC Client platform volume was up 3% sequentially and up 7% Y/Y. PC Client ASPs were down 2% sequentially and down 2% Y/Y.
- Notebook platform volume was up 10% sequentially, while notebook ASPs were down 3% sequentially.
- Desktop platform volume was down 6% sequentially, while desktop ASPs were flat sequentially.
2) Data Center Group revenue was a major positive with the revenues of $2.8 billion, up 15% Y/Y and 14% Q/Q. Considerable growth was reported in both volumes and ASPs. Data Center platform volume was up 4% Y/Y and 11% sequentially while Data Center ASPs were up 3% sequentially and up 12% Y/Y.
3) Although Other Intel Architecture Group (OIAG) revenue of $1.1 billion was down 20% Y/Y, it rose 3% sequentially. The Y/Y decline could be attributed to lower Intel Mobile Communications revenue, as well as lower demand for netbooks.
4) The Software and Services Group contributed revenue of $586 million, up 3% sequentially and up 15% Y/Y.
Analysis:
The main positive for Intel remained the growth of its data center, as its revenues increased 14% Q/Q with traction in its high-ROI Romley platform. Romley mainly benefited from high-performance computing applications and Cloud computing. We expect the server division to continue showing positive trends in the coming quarters as well as with the growth of cloud computing. In the PC market, trends in the U.S. and Europe did not improve, while growth in emerging markets was moderate. We expect the PC client sales to pick up in Q4 with Microsoft’s (NASDAQ: MSFT) Windows 8 launch, which could act as a positive catalyst (see: Microsoft’s Outperformance: You Ain’t Seen Nothing Yet). Since consumers will be attracted to the new touch features and functionalities in Windows 8, it will help drive sales in Q4 and 2013. Intel looks likely to improve the cost structure in the OIAG with the ramp from 32nm to lower cost 22nm MPUs going on through 2012. The company will also benefit from the growing penetration of Google (NASDAQ: GOOG) Android, as it will lead to higher demand for Intel MPUs. There is an increasing likelihood of Intel manufacturing ‘Medfield’ Chips for the Apple (NASDAQ: AAPL) iPhone and iPad in the coming years, which could be another catalyst for the stock.
Going Forward:
Intel delivered in-line revenue results and beat on EPS as gross margins came in at the higher end of guidance. Intel’s revenue remained resilient despite a significant slowdown in the macro environment. We remain increasingly positive that Intel, with its new product launches and diversification outside the core PC market, has a genuine chance to increase its revenues in the long term. Looking forward, we believe that Intel's manufacturing advantages can preserve its dominance in PCs and servers while gaining market share in handsets and tablets over the next few years, and therefore we are bullish on this stock.
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