Intel’s recently reported third-quarter earnings beat Wall Street’s expectations on revenue. But the chipmaker’s gross income slid by 4 percent year-over-year. The company’s weak fourth-quarter forecast and unresolved manufacturing issues prompted its stock to fall by 10 percent on Friday.
That said, its recent moves and announcements indicate a major comeback is forthcoming.
Intel’s Uneven Q3 Financial Results
On the one hand, it seems absurd to argue it’s a bad thing when a company makes $18.3 billion in a single quarter. On the other, when it made $19.2 billion in the same period last year, the $800 million shortfall is impossible to ignore.
Still, the firm managed to beat Refinitiv’s consensus analyst estimate, which pegged its sales at $18.25 billion.
Intel’s quarterly financial report showed that the issue is not its offerings becoming significantly less popular. On the contrary, the manufacturer increased its notebook and personal computer platform sales volume by 10 and 19 percent from last year, respectively. The problem is pricing; the corporation recorded double-digit dips in the average selling price of its data center and laptop products last quarter.
The company’s income suffered from a 47 percent year-over-year decline in enterprise and government data center purchases. It noted its clients had curtailed their spending due to the economic fallout of the coronavirus pandemic. The firm also saw a 15 percent annual spike in its cloud business due to the global health crisis. But those gains could not offset the losses sustained by its core segment.
Temporary Uncertainty, Long-Term Potential
For the current period, Intel anticipates sales totaling $17.4 billion and earnings per share (EPS) of $1.02. On an annual basis, the firm’s guidance indicates an expected 13.86 percent sales tumble and a 35.44 percent EPS decrease. In addition, its projections represent a sequential decline of 4.91 percent on revenue but stable EPS.
CEO Bob Swan also offered some encouraging updates on Intel’s manufacturing process during an analyst call.
In July, the executive noted that his firm had encountered difficulties with its 7nm component fabrication process. That meant it would not be able to offer products using the technology until 2022. On Thursday, he revealed the company had identified the issue and had deployed a promising fix. Nevertheless, Swan is unsure if Intel will purchase new equipment or outsource its chip-making to meet demand.
The corporation will reveal its future fabrication plans in January, along with its Q4 financial results.
The combination of Intel’s soft Q3 performance, negative near-term outlook, and uncertainty about its production plans are undeniably worrisome. But the company exited the prior quarter with $15.2 billion in free cash flow. Its decision to sell off its underperforming NAND business and extraterrestrial artificial intelligence innovations indicate a long-term growth strategy is at play.
Right now, Intel is going through a rough patch, but it has the capital and capability to mount a major comeback.