Intel Reports Better-Than-Expected Earnings; Revenue Disappoints

 INTC Chip behemoth Intel Corp. (NASDAQ: INTC – $34.66) announced somewhat mixed results for the second quarter. On the plus side, revenues came in at $13.5 billion, which was 2.6% above last year’s comparable tally but somewhat below analyst’s predictions. Adjusted share earnings were $0.59, above consensus of $0.54 and the year-earlier tally of $0.55. The bottom-line surprise was aided by a gross margin of 61.8%, which exceeded the technology company’s guidance by almost 100 basis points. Also, $3.8 billion was generated in operating cash flow, while the company’s restructuring initiatives remained on track. These measures should result in $1.4 billion in yearly cost savings upon completion. Client Computing Group revenues, however, declined 3% sequentially and year-over-year and the Internet of Things segment posted a 12% sequential decline, though it was up 2%, from a year ago. The Nonvolatile Memory segment comparisons were also hard hit, falling 20% from 2015, and slipping slightly from the last quarter. On a more positive note, the Intel Security Group posted a 10% increase at the top line relative to last year, with flat results sequentially. Finally, the Programmable Solutions Group, a new division created following the early-2016 Altera purchase, was up 30% from the March period.

       For the full year, the top line should grow at a mid-single-digit clip, while analysts expect earnings of $2.49 a share. The company’s financial results are highly correlated with the health of the broader economy. At this juncture, I look for steady, albeit subdued, gains in gross domestic product stateside. The international outlook is more uneven, with the recent Brexit vote causing uncertainty across most of Europe. Overall, these shares should remain a core holding for long-term, income-centric investors seeking a presence in the technology sector. Also, a well-covered and above average dividend yielding 3.0% adds potential for decent total returns to late-decade.
INTC

 

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