Income · Stocks to Consider and Updates

Intel Beats Estimates; Second Quarter Guidance Disappoints

Chip behemoth Intel Corp. (NASDAQ: INTC – $51.97) reported March-quarter sales of $16.1 billion that were flat compared to a year ago, but a tad higher than estimates of $16.03 billion.  Likewise, adjusted earnings per share were two cents higher than consensus estimates and two cents better than the first quarter of 2018, but profit margins were fell. The PC-centric segment registered a 4% uptick in sales, thanks to a healthy mix of high-performance products, along with strength in the gaming, large commercial and modem units. Intel’s first 10 nanometer microprocessor code-named Ice Lake remains on track to be on retail shelves by the 2019 holiday season. However, the all-important data-centric business, which is closely monitored by Wall Street, declined 5% year-over-year. Looking at the Data Center group a bit further, the cloud segment climbed 5%, while the communications service provider division fell 4% and enterprise and government revenue plummeted 21%. Memory sales were down 12% reflecting a challenging pricing environment, while the Programmable Solutions Group declined 2%. Conversely, the Internet of Things unit registered an 8% year-over-year advance, while Mobileye, which provides content for autonomous cars, saw its sales catapult to a record $209 million, up 38% year to year.

       Meantime, the outlook for the June period fell short of previous expectations. Company guidance suggested that sales would be about $15.6 billion, which is a far cry from a Street forecast of $16.9 billion. Furthermore, June-period adjusted earnings per share are likely to be about $0.89 according to management vs. $0.93 from analysts and three cents below last year’s second quarter. That said, the back half of the year is looking to be stronger, based on Intel’s guidance. The top line for the full year is forecasted to be about $69 billion, with share earnings dialing in at $4.35. While the aggregate top- and bottom-line figures for this year are likely to decline from 2018, the final six months are likely to be strong relative to the first-half performance.

       I believe the first half of the year will prove to be a minor hiccup for Intel, during what appears to be a continued upcycle.  Intel stock remains a solid long-term income choice, though there may be higher-than-normal price volatility over the next few weeks as the market digests what will likely be a temporary slowdown at the bottom line. Despite a nearly 10% drop in the stock price following the conservative guidance, the shares are up 12% over the past 52-weeks and provide for a 2.2% dividend yield and can continue to be considered for income investors.

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