Intel Corporation INTC reported relatively healthy second-quarter 2023 results with better-than-expected earnings, largely due to solid client business with a modest recovery in the consumer and education segments and strength in the premium segments. Both the bottom line and top line beat the respective Zacks Consensus Estimate.
Quarter Details
The company reported GAAP earnings of $1,481 million or 35 cents per share against a net loss of $454 million or a loss of 11 cents per share in the year-ago quarter. The significant improvement was due to a better-than-expected performance across most operating segments, leading to solid revenues for the quarter. The bottom line also gained from lower operating expenses and income tax benefit.
Non-GAAP earnings in the reported quarter were $547 million or 13 cents per share compared with $1,148 million or 28 cents per share a year ago. The bottom line beat the Zacks Consensus Estimate by 17 cents.
Intel Corporation Price, Consensus and EPS Surprise
Intel Corporation price-consensus-eps-surprise-chart | Intel Corporation Quote
GAAP revenues in the reported quarter were $12,949 million, down 15.5% year over year. Despite the year-over-year decline, quarterly revenues were more than $900 million above the mid-point of the guided range. The top line beat the consensus estimate of $12,025 million. In response to supply chain issues, the company is closely collaborating with customers and suppliers to effectively address their most critical needs. Intel envisions a sustained recovery in the second half of the year with normalization in inventory levels and improvement in long-term PC outlook driven by higher usage compared to pre-pandemic levels.
Segment Performance
By segments, Client Computing Group (CCG, 52.4% of total revenues) revenues were down 11.7% year over year to $6,780 million. This was largely due to global TAM (total addressable market) contraction and inventory reduction by OEMs. However, it exceeded management expectations and was well above our estimates of $5,799 million. The company expects shipments to align more closely to consumption patterns in the second half as the pace of customer inventory burn slowed.
Datacenter and AI Group (DCAI, 30.9%) revenues fell 14.7% year over year to $4,004 million. This was due to OEM inventory reductions and competitive pressures. However, it exceeded our estimates of $3,779.1 million. Intel witnessed TAM contraction across all CPU market segments. The company has a singular focus on regaining performance and TCO leadership across all workloads and use cases from enterprise to cloud, as the business is expected to return to normal demand levels.
Network and Edge Group (NEX, 10.5%) revenues declined 38.3% to $1,364 million as elevated inventory levels and soft demand trends with sluggish recovery in China affected segment sales. Various firms have also delayed infrastructure investments owing to macroeconomic uncertainty. The segment revenues fell short of our estimates of $1,516.4 million.
Mobileye (3.5%) revenues were relatively flat at $454 million, primarily driven by higher demand for EyeQ products. Intel Foundry Services (IFS, 1.8%) revenues were $232 million, up 307% on increased packaging revenues and higher sales of IMS Nanofabrication tools, while All Other (0.9%) revenues were $115 million, falling 47.7% year over year.
Other Operating Details
Non-GAAP gross margin was 39.8%, down from 44.8% in the year-earlier quarter. Non-GAAP operating margin contracted from 9.3% to 3.5%.
CCG’s operating income was up 18.6% year over year to $1,039 million, while DCAI’s operating loss more than doubled to $161 million, primarily due to higher unit costs. NEX’s operating loss was $187 million against an operating income of $294 million on lower revenues, while that from Mobileye declined to $129 million from $190 million a year ago on higher investments.
Cash Flow & Liquidity
As of Jun 30, 2023, Intel had cash and cash equivalents of $8,349 million, with $46,335 million of long-term debt. During the first six months of 2023, Intel generated $1,023 million of cash from operating activities compared with $6,700 million in the year-ago period.
Outlook
For the third quarter of 2023, Intel expects non-GAAP revenues to be $12.9-$13.9 billion. Non-GAAP gross margin is likely to be 43%. Non-GAAP earnings are expected to be around 20 cents per share. The company anticipates customer inventory levels and business uncertainties to stabilize gradually. Intel expects the macroeconomic headwinds to ease steadily in the second half of the year.
Zacks Rank & Other Stocks to Consider
Intel currently carries a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Here are some other top-ranked stocks from the broader industry.
InterDigital, Inc. IDCC, sporting a Zacks Rank #1, delivered an earnings surprise of 170.89%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 579.03%. It has a long-term earnings growth expectation of 13.9%.
It is a pioneer in advanced mobile technologies that enables wireless communications and capabilities. The company engages in designing and developing a wide range of advanced technology solutions, which are used in digital cellular and wireless 3G, 4G and IEEE 802-related products and networks.
Akamai Technologies, Inc. AKAM, carrying a Zacks Rank #2, delivered an earnings surprise of 4.9%, on average, in the trailing four quarters. It has a long-term earnings growth expectation of 10%.
Akamai is a global provider of content delivery network and cloud infrastructure services. The company’s solutions accelerate and improve the delivery of content over the Internet, enabling faster response to requests for web pages, streaming of video & audio, business applications, etc. Akamai’s offerings are intended to reduce the impact of traffic congestion, bandwidth constraints and capacity limitations on customers.
Viasat Inc. VSAT, sporting a Zacks Rank #1, enjoys a leading position in the satellite and wireless communications market. Headquartered in Carlsbad, CA, it designs, develops and markets advanced digital satellite telecommunications and other wireless networking and signal processing equipment. The company serves its high-bandwidth, high-performance communications solutions to the public as well as military, enterprises and government enterprises.
Viasat is ramping up investments in the development of its revolutionary ViaSat-3 broadband communications platform, which will have nearly 10 times the bandwidth capacity of ViaSat-2. These satellites will be capable of covering one-third of the world, including all Americas.
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