Intel Shares Slid Over Weak Q3 Sales Report

Intel Shares Slid Over Weak Q3 Sales Report

Intel shares plunged more than 10% in pre-market hours on Friday even as it posted stronger than expected earnings and raised its sales outlook for the year. The company posted a weaker sales report as the industry-wide component shortage ate up its potential sales for its PC chip business, contracting 2% during the quarter ending September 30.

In the call with the analysts, Intel warned of a potential decline in free cash flow and gross margins in the coming next two to three years. Pat Gelsinger, Chief Executive Officer  said, “As with free cash flow, our gross margins will be below current levels for the next two to three years before recovering but will remain comfortably above 50% as we continue to exercise financial prudence.”

Third-quarter revenue saw a 5% rise YOY, settling at $18.1 billion, exceeding the analysts’ expectations of $18.24 billion. 

Adjusted Earning Per Share for the reporting quarter stood at $1.71, exceeding its July guidance by $0.61.

Moving to segment-wise performance, Intel’s Client Computing Group business unit revenue plummeted 2% YOY to $9.7 billion. CCG includes PC chip revenue, which continues to face strong headwinds with chip shortages.

“The Client Computing Group (CCG) was down due to lower notebook volumes due to industry-wide component shortages, and on lower adjacent revenue, partially offset by higher average selling prices (ASPs) and strength in desktop,” said the Santa Clara, California based company. 

Intel shares slid over weak Q3 sales report

Following the declaration, Intel stock fell 8.8% in the extended trading session on October 21. The social engagement for the stock amongst the users of Twitter and Reddit on the dashboard of Quantale spiked more than 800 percent combined with an increase of more than 124 percent in the trading volume.

A total of 38.02 million shares of the stock exchanged hands, 16.64 million above the average of 21.38 million. 

The stock market today for Intel looks pessimistic, probably a sharp sell-off is in sight. The shares of the stock opened its intraday at $50.39, down $6.39 from its previous day close of $56.00.

PC sales saw a surge in the previous year as consumers around the world needed new laptops and desktops to adjust with the digital shift, to work from home and study online. But the pandemic-related PC surge may be coming to a standstill as sales slow, according to analysts. On the contrary, Gelsinger believes that the demand curated during the pandemic is likely to sustain. 

“As we head into 2022, we expect the ecosystem supply situation to gradually improve and the PC market will continue to grow as tailwinds from Win 11, hybrid work models, a larger installed base and compelling new platforms drive PC density, shorter replacement cycles, and penetration of new markets,” said Gelsinger in the earnings conference call with analysts. 

In the said quarter, Intel achieved record revenue in Intel’s Internet of Things Group (IOTG), increasing 54% to $1.0 billion. Also, the company recorded third-quarter revenue in the Data Center Group (DCG) and Mobileye businesses at $6.5 billion and $326 million, up by 10% and 39% YOY. 

“Third-quarter revenue was led by a strong recovery in the Enterprise portion of DCG and in IOTG, which saw higher demand amid recovery from the economic impacts of COVID-19,” the company said in a statement. 

Intel spent $20 billion to build two new semiconductor factories in Chandler, Arizona as a part of its turnaround plan to leading manufacturers of chips for outside customers.

“Last month, we broke ground on our two new fabs in Arizona, three months ahead of schedule. As we expand capacity, we’re using a smart capital approach so that we can adjust quickly to opportunities in the market and to gain share while managing our margin structure and capital spending,” said Gelsinger in the conference call with analysts. 

In addition, in the communique, the company announced Amazon as its first customer to use Intel Foundry Services’ packaging services, and a partnership with Qualcomm to use the future Intel 20A process technology.

Intel is also selected by the U.S. government to provide commercial foundry services for the government’s RAMP-C program. 

Intel’s gross margin for the reporting quarter was 56%, up 2.9%in comparison to the same quarter last year. 

Intel CFO George Davis announced that he will retire in May 2022.

In its Q4 guidance, the company expects the revenue to attract $18.3 billion and earnings per share to come in at $0.90. For full-year 2021, it expects the revenue to attract $73.5 billion and EPS should print a $5.28 figure. 

“We are holding revenue guidance at $73.5 billion with gross margin up modestly to 57% and EPS of $5.28, up $0.48 from our prior guide. Consistent with the investment mode we are in under IDM 2.0, we expect capex of $18 billion to $19 billion and free cash flow of approximately $12.5 billion, up $1.5 billion versus prior guidance,” said Gelsinger.