Yahoo Finance’s Emily McCormick joins Akiko Fujita to break down Intel’s third-quarter earnings report.
AKIKO FUJITA: Shares of Intel are tumbling in the session here. They’re down about 11% now. This, coming on the back of their earnings report yesterday. The big concern here for investors, a decline in data center sales. Let’s bring in Emily McCormick, who’s been tracking that stock for us. And Emily, we’ve seen this knock-on effect with other chip-makers moving as a result of what we heard from Intel.
EMILY MCCORMICK: Absolutely, Akiko. And just taking a look here at these results we got after market close yesterday, the company’s better-than-expected results on the top and bottom-line for the third quarter and guidance that did meet consensus expectations was overshadowed, as you said, by a surprise drop in that data center group sales specifically. That’s typically a major source of profit here for this company.
Now, in that unit specifically, we saw sales down 7.5% to $5.9 billion. And remember that an increase had actually been expected, and this was due to a slowdown in activity at Intel’s large corporate and government customers during the pandemic. Now, we also saw operating margin in that data center group narrowing to 32%. That’s down significantly from the 49% margin that we saw in the same period last year. That, in turn, coming as we saw average selling prices for datacenter chips declining during the quarter, and of course, with Intel contending with competitors and newcomers, like Advanced Micro Devices, into this space.
Now, in terms of strategy, remember that Intel has, to date, continued to produce its own components for its chips, even as some of its rivals have turned to other firms and actually outsourced its production. Now, to that end, Intel has continuously pushed back the date for when its 7-nanometer chip production process will actually be able to come online. Remember, that’s been delayed a number of times now. It’s more than a year in the making here. Bob Swann, the CEO, saying on the earnings call yesterday that the company is going to decide by early next year whether it actually will push ahead with this production or outsource it to another firm, which is something Wall Street has been just a little bit concerned about, given that the company has continuously pushed back the 7-nanometer chip production.
Now, overall, we are seeing a slew of bearish calls following this earnings report. We had Bank of America cutting its rating on Intel to underperform from neutral. Cowen slashed its price target on the stock to $50 from $55 per share, and Morgan Stanley also slashed their price target on the stock to $56 from $61. So overall, seeing some weakness here at Intel during the session on the heels of these results, Akiko.
AKIKO FUJITA: And Emily, when you talk about those bearish calls, how much of that is Intel specific? I mean, to your point, we’ve seen AMD get a big pop on the back of Intel’s numbers– that stock up nearly 3% now.
EMILY MCCORMICK: Absolutely. And if we take a look at AMD specifically, remember that investors have really honed in here on that rivalry between Intel and AMD. There have been reports the past couple weeks that AMD is in advanced talks to actually purchase and merge with that rival Xilinx. So that’s something that could also really boost up the competitive edge that AMD has on that CPU chip side, specifically.
So again, a lot of this is Intel specific. We take a look at that stock, it’s down about 20% for the year to date. We take a look at the broader chip-making space, the Philadelphia Semiconductor Index is up nearly 30%, Akiko.
AKIKO FUJITA: Emily McCormick, thanks so much for bringing us that story.