24 July 2020

Production Woes Chip Away at Intel’s Stock Despite Q2 Beat

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What’s happening: Shares of Intel Corp plummeted more than 10% in extended trading on Thursday despite the world’s largest chipmaker reporting stronger-than-expected results for its second quarter.

What happened: Intel witnessed robust demand for its products that support cloud-based services, given the growing work- and learn-from-home trend in the second quarter due to the coronavirus crisis.

Despite exceeding both top- and bottom-line estimates, investors focused on the Santa Clara, California-based company’s announcement of a delay in its next-gen chips.

How were the results: The chipmaker reported growth in both sales and earnings for the second quarter.

  • Revenues grew 20% to $19.7 billion, from $16.51 billion in the same quarter last year, and exceeded the consensus estimate of $18.54 billion.
  • Net income came in at $5.1 billion, or $1.19 per share, up from $4.18 billion, or 92 cents per share, a year earlier.
  • Excluding costs, Intel earned $1.23 per share, up from $1.06 per share in the year-ago quarter, beating expectations of $1.11 per share.

Why it matters: Intel’s sales grew during the quarter, as people shifted to working from home and schools and universities held virtual classes across the globe, amid the pandemic.

The company’s data center division generated revenues of $7.1 billion, beating the consensus view of $6.61 billion. Sales related to traditional PCs surged to $9.5 billion, also exceeding expectations of $9.1 billion.

Intel reinstated its forecast, projecting adjusted earnings of $1.10 per share on revenues of $18.2 billion for the third quarter. For the full year, management guided to adjusted earnings of $4.85 a share on revenues of $75 billion.

Following the release of quarterly results, Intel disappointed investors by announcing a delay in its next generation 7-nanometer chips. The company said its next-gen technology will be delayed by at least six months and that its contingency plan was to use a third-party service for manufacturing chips.

“We have identified a defect mode in our 7-nanometer process that resulted in yield degradation,” said CEO Bob Swan. “We’ve root-caused the issue and believe there are no fundamental roadblocks, but we have also invested in contingency plans to hedge against further schedule uncertainty.”

Earlier this month, Nvidia surpassed Intel as the most valuable chip supplier in the US, given its higher sales to data centers. The company’s PC market rival, Advanced Micro Devices, has also announced new PC chips.

How shares responded: Intel’s shares plunged 10.6% to $54.00 in after-hours trading following the release of quarterly results, after losing 1.1% during the regular session. The chipmaker’s shares have gained only 0.8% over the past month, while losing around 5% over the last six months.

What to watch: Investors will look out for any news related to the company’s next-gen chips and on progress made by competitors. Investors expect Intel to take actions to pick up its momentum and return to normal production capacity.

The Markets Today

     

US stocks will be in focus today, ahead of a basket of economic reports scheduled for release later in the day.

Context: US equities closed lower on Thursday, with shares of technology giants, including Apple and Microsoft, leading the decline among blue-cap stocks. Investors also responded to weak jobless claims data.

Details: The US Labor Department data reported that around 1.42 million people had filed for first-time jobless claims, exceeding the consensus estimate of 1.3 million.

Markets were also closely monitoring the recent negotiations by US lawmakers regarding additional fiscal stimulus to help the economy recover from the coronavirus crisis. Meanwhile, US-China tensions continued to escalate, with Beijing considering the closure of the US consulate in the southwestern city of Chengdu, after the Trump administration gave 72 hours to the Chinese consulate in Houston to shut down completely.

Shares of Microsoft declined more than 4% despite the company reporting record revenues for latest quarter. Apple’s stock also plummeted 4.7% on Thursday following reports of a delay in the launch of the new 5G iPhones.

Tesla reported better-than-expected quarterly results and posted profits for the fourth consecutive quarter to meet another requirement for its entry into the S&P 500 index. Shares of Dow Inc. fell more than 3% after the company reported a loss for the latest quarter and announced plans to reduce its workforce by 6%.

The Dow Jones index lost 353.51 points to close at 26,652.33 on Thursday, while the S&P 500 declined 1.2% to reach 3,235.66. The tech-heavy Nasdaq 100 tumbled 2.3% to settle at 10,461.42.

What to watch: Investors await data on new home sales, manufacturing, and services PMIs. The IHS Markit US Manufacturing PMI is expected to return to expansion zone, rising to 51.5 in July, from 49.8 in June. Services PMI is projected to increase to 51 in July, versus June’s reading of 47.9. New home sales, which surged 16.6% to an annualized rate of 676,000 in May, are expected to increase 4% in June.

Markets will also keep an eye on the coronavirus numbers, with cases in the US exceeding 4 million.

Other Markets: European indices were trading lower at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index down by 1.3%, 1.6% and 1.7%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

India’s foreign exchange reserves as well as the US Baker Hughes crude oil rigs report.

 

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