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Dow-30 Earnings: Intel Corp. – Second Quarter 2012
Chip behemoth Intel (INTC – Free Intel Stock Report) has reported somewhat mixed second-quarter results. More specifically, revenues came in at $13.5 billion, while share net was $0.54 for the interim. Both figures were close to our expectations of $13.6 billion and $0.53, respectively. The company benefited from strong demand for Romley chips, which drove Data Center's revenues 14% higher on a sequential basis. We believe this is a reversal of a pause in server microprocessor demand, which occurred prior to the launch of Romley. Data Center platform average selling prices climbed 3% sequentially and 12% on a year-over-year basis. What's more, Intel's notebook microprocessor unit shipments increased by a double-digit percentage, sequentially. Overall, we believe Intel gained market share in the microprocessor market, reporting 5% sequential sales growth, while struggling rival Advanced Micro Devices (AMD) posted an 11% decline in June-period sales. Overall, despite slightly lower revenues than we had anticipated, the company's gross margin came in at 63.4%, above the midpoint of management's forecast.
However, the company gave September-quarter guidance that was less optimistic than we had expected. To wit, management stated that the top line would be about $14.3 billion, plus or minus $500 million, while we had been looking for revenues in the vicinity of $14.8 billion. The midpoint of company guidance implies a mid-single-digit sequential revenue increase. What's more, the gross margin is poised to be slightly lower than the June period, at about 63%, owing to higher “other” costs of goods sold and lower platform average selling prices, offset somewhat by lower platform unit costs and higher platform volumes. We attribute the more cautious view for the September quarter to sluggish global macroeconomic conditions, particularly in Europe.
As a result of the recent news, we have scaled back our estimates for this year and next. For the current year, we now look for revenues of $56.175 billion, a modest decrease from our initial call of $57.070 billion. Management estimated that full-year 2012 revenues would climb 3%-5%, year over year, and we are approximately at the midpoint of that range. The gross margin is likely to be about 64%, which would represent a 150-basis-point increase from last year's tally. We have sliced a nickel from our earnings-per-share estimate, which now stands at $2.45. For next year, we now look for net income of $2.60 a share, a $0.10 reduction from our prior expectation. Though we believe the global economy will be on firmer footing in 2013, we think that a recovery will be gradual.
Intel shares traded nicely higher following the June-period earnings announcement, despite the somewhat sluggish September view, moving above the 200-day moving average. We believe that the global economic concerns aren't a surprise to many, and thus investors realize that management is doing a decent job of steering the company through treacherous waters. We continue to favor Intel shares for the 3- to 5-year investment horizon. The company's rock solid balance sheet, strong management team, and immense size give it a leg up on the competition and should result in double-digit annual earnings gains, on average, over the pull to 2015-2017. Conservative accounts should note that Stock Price Stability is strong (80 out of 100), while the issue offers an above-average dividend yield, which isn't commonplace in the technology sector.
About The Company:Intel Corporation is a leading manufacturer of integrated circuits. In addition to primarily supplying manufacturers of personal computers, the company serves a multitude of other global markets, including communications, industrial automation, military, and other electronic equipment. Intel’s product line consists of microprocessors, with the Pentium series being the most notable. It also manufactures microcontrollers and memory chips, and the company sells computer modules and boards, and network products.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.