Intel (NASDAQ: INTC) Q1 2020 Earnings – a Strong Performance in an Uncertain Environment

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Intel (NASDAQ:INTC) is, inarguably, a behemoth in the global semiconductor space, having taken the lead from Samsung Electronics in 2019 to capture the industry apex. The chipmaker is also currently dominating the CPU market in China. Consequently, investors and analysts were eagerly anticipating the company’s Q1 2020 earnings that have now become a key barometer in gauging the health of the global chipmaker industry in an era characterized by unprecedented demand destruction due to the ongoing coronavirus (COVID-19) pandemic. The results for the pertinent quarter were released moments ago and they certainly did not disappoint, with the chipmaker reporting healthy growth in its top-line as well as bottom-line metrics.

How Does Intel’s Scorecard Stack Up?

For the three months that ended on the 31st of March 2020, Intel earned $19.8 billion in revenue, marking an increase of 23 percent year over year.

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(All figures are in billions of dollars)

A break-down of revenue by business units is as follows:

Intel Business Units Q1 2020 Change relative to Q1 2019
Client Computing Group (CCG) $9.8 billion up 14 percent
Data Center Group (DCG) $7 billion up 43 percent
Internet Of Things Group (IOTG) $883 million down 3 percent
Non-Volatile Memory Solutions Group (NSG) $1.3 billion up 46 percent
Programable Solutions Group (PSG) $519 million up 7 percent
Data-centric Mobileye $254 million up 22 percent

Also, Intel was able to earn Operating Cash Flow of $6.16 billion during the applicable quarter.

(All figures are in billions of dollars)

Finally, the silicon giant reported GAAP EPS of $1.31, beating expectations by $0.11

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(All figures are in dollars)

Looking Ahead

As far as the guidance for Q2 2020 is concerned, Intel expects to earn a revenue of $18.5 billion. Moreover, Intel expects its operating margin to compute at 28 percent (on GAAP basis) during the second quarter.

Regarding the impact of the coronavirus pandemic, Intel said:

"The company maintained essential factory operations with greater than 90 percent on-time delivery while supporting employees, customers and communities in response to the COVID-19 pandemic. This includes a new Intel Pandemic Response Technology Initiative to combat the virus where we can uniquely make difference with Intel technology, expertise, and resources."

The letter went on to note:

"First-quarter data-centric results were led by strength in the Data Center Group (DCG) with revenue up 43 percent YoY driven by broad strength including 53 percent YoY growth in cloud service provider revenue. Intel's memory business (NSG) and Mobileye both set new revenue records in the first quarter. Also, Intel introduced a broad, datacentric portfolio for 5G network infrastructure, including the new Intel Atom® P5900, a 10nm system-on-chip (SoC) for wireless base stations; a next-generation structured ASIC for 5G network acceleration (code named “Diamond Mesa”); and new 2nd Gen Intel® Xeon® Scalable processors."

The market has reacted negatively to Intel’s financial reporting with the stock posting a decrease of 3 percent in the after-hours trading due to a conservative guidance. Year to date, the stock has generated a gain of 0.42 percent versus a loss of 13.41 percent registered by the S&P 500 index during the same timeframe.

Intel benefited from growth in its data center business in Q1 2020 as the continuing coronavirus (COVID-19) pandemic and the attendant spatial distancing measures enacted to curtail its spread spurred the adoption of cloud-based remote working solutions. The segment has been prospering on the back of a robust adoption of Intel’s Xeon processors which, as a matter of course, are integrated with Optane DC Persistent Memory solution. Bear in mind that these Optane memory modules continue to be deployed by the likes of Oracle (NYSE:ORCL), SAP (NYSE:SAP), Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Baidu (NASDAQ:BIDU), and Alibaba (NYSE:BABA). Additionally, Intel continues to focus on improving its Field Programmable Gate Array (FPGA) in order to reduce latency and increase speeds.

Nonetheless, the Client Computing Group continues to face headwinds from the ongoing declining trend in PC shipments. As per a preliminary tabulation of data by the analytics firm Gartner, PC shipments in Q1 2020 declined by 12.3 percent year over year to 51.6 million units. On another sobering note, AMD’s (NASDAQ:AMD) second-gen EPYC processors have the potential to create a very competitive pricing environment which, in turn, will likely compress Intel’s margins if this phenomenon pans out to the fullest extent. Similarly, Intel continues to face stringent competition from Micron (NASDAQ:MU) and Western Digital (NASDAQ:WDC) in the data center storage sphere.

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