Intel Delivers Mixed Q3 Results & Guidance; Shares Fall 9% After-Hours

Global technology giant Intel Corporation (INTC) delivered weaker-than-expected revenue driven largely by chip shortages. The company plans to invest heavily in building new chip factories and expanding its foundry services business.

Moreover, Intel CFO George Davis announced his retirement effective May 2022, saying that he will continue to serve in his role until Intel finds a suitable successor. Following the news, shares of the world’s largest semiconductor chip maker fell 8.8% in the extended trading session on October 21.

The company reported adjusted revenue of $18.1 billion (excluding the NAND memory business, which is subject to a pending sale), an increase of 5% compared to the prior-year quarter, but failed to meet the consensus estimate of $18.24 billion.

On a positive note, Intel’s earnings stood at $1.71 per share, up 59% year-over-year, and meaningfully beat analyst estimates of $1.11 per share.

Intel’s Q3 revenue was impacted by lower notebook sales in its Client Computing Group (CCG) due to the global chip shortage, while demand was strong in its Data Center Group (DCG) and Internet of Things Group (IOTG) segments. (See Insiders’ Hot Stocks on TipRanks)

Commenting on the results, Intel CEO Pat Gelsinger said, “We broke ground on new fabs, shared our accelerated path to regain process performance leadership, and unveiled our most dramatic architectural innovations in a decade. We also announced major customer wins across every part of our business.”

Gelsinger concluded, “We are still in the early stages of our journey, but I see the enormous opportunity ahead, and I couldn’t be prouder of the progress we are making towards that opportunity.”

Further, Intel projects Q4 adjusted revenue of about $18.3 billion versus the consensus estimate of $18.25 billion. Earnings are expected to be approximately $0.90 per share, lower than consensus forecasts of $1.01 per share.

Based on the current economic environment and continued business momentum, Intel raised its full-year Fiscal 2021 earnings guidance to $5.28 per share, and adjusted revenue is forecast to be approximately 73.5 billion.

In response to Intel’s disappointing performance, Mizuho Securities analyst Vijay Rakesh downgraded the stock to a Hold rating from a Buy and also lowered his price target to $55 (1.8% downside potential) from $70.

Rakesh said, “We have been positive on INTC’s ability to return to executing on its technology roadmap with new management. However, we now believe INTC’s capital intensive Foundry shift adds uncertainty to its likelihood of catching up to leading-edge by executing on its core PC/Server roadmap, and believe the gross margins (GM) reset to 51-53% (current 56%) over 2-3 years could be difficult to recover.”

Additionally, the analyst believes that Intel’s 10 – 12% top-line CAGR target is too optimistic given its recent historical CAGR of around 3%. Also, the analyst notes that though Intel is a leader in the PC market, its Data Center group is currently not strong enough to catch up to AMD.

Overall, the stock has a Hold consensus rating based on 5 Buys, 10 Holds, and 6 Sells. The average Intel price target of $58.25 implies 4% upside potential to current levels. Shares have gained 3.9% over the past year.

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