Although Intel has forecast higher revenues for its fourth quarter, it has conceded that in the long term trade tensions with China could act as headwinds.
On the back of strong demands for Intel chips for personal computers and high margins from its data center business, Intel Corp announced its quarterly revenues which beat analysts’ estimates. With Intel bucking the trend, its shares shot up by 6% in extended trading although its shares lost those gains due to U.S. trade tensions with China.
Intel reported a 39% rise in net profits; it also forecast a stronger fourth-quarter results, which came as a relief to investors who have been dealing with grim quarterly results from other major chipmakers.
On Thursday, tech giants, Amazon Inc and Alphabet Inc reported disappointing earnings sending technology stocks down in after hours trading.
According to Intel executives, U.S. trade tensions with China is not likely to significantly impact its revenues in the near-term, despite the fact that large data center customers like Baidu Inc and consumer PC factories are located in China. However, in the longer term, Intel’s Interim Chief Executive Bob Swan said, trade tensions could be a “headwind”.
Much of its sales have been driven by Microsoft Corp’s discontinuing support for older versions of windows in early 2020.
“We’ll be working with our domestic Chinese customers and our global [PC manufacturers] to adjust and adapt the supply chain to deal with constraints,” said Swan during an interview before holding a conference call with analysts. He later conceded that trade tensions could a “headwind” for Intel in 2019, although it was too early to gauge and quantify its impact.
Also boosting Intel’s sales, this quarter, was its modem chip business which connect smart phones to wireless data networks; revenues from this stream was up by 131% in this quarter. The jump in profit can be attributed to Apple sourcing chips from Intel rather than Qualcomm Inc for its recent models.
However Swan said, the modem sales are also pressuring Intel’s margins and contributed to the firm lowering its fourth-quarter operating margin outlook to 34.5%.
“That being said, what the modems and memory do for the company is allow us to play in a much larger market,” said Swan.
Going by Refinitiv data, against analysts’s average expectation of $18.40 billion in revenues which amount to a profit of $1.09 per share, Intel reported revenues of $19 billion and adjusted earnings of $1.22 per share.
Revenues from its data center business rose by 25.9% to $6.14 billion in this quarter against analysts’ expectation of $5.89 billion, said financial and data analytics firm FactSet.
Revenue from its client computing business, which caters to PC makers and is still the biggest contributor to sales, also saw a rise of 15.5% to $10.23 billion, thus beating FactSet estimates of $9.33 billion.
“There’s been really strong demand for both the consumer and enterprise for PCs which helped. They also did a great job managing through some supply disruptions,” said Chaim Siegel, an analyst at Elazar Advisors.
Intel recorded a $290 million charge as a result of Micron Technology Inc’s decision to buy out Intel’s portion of a memory fabrication plant in Utah where the two had partnered to build advanced memory chips; the move has been described by Patrick Moorhead, an analyst at Moor Insights & Strategy as a “negotiation tactics.” He expects the two to find a way to work together.
“Despite their announcement, we will still have access to supply from the fab for the next 18 to 24 months, and that will give us time to explore the alternatives we have to produce the product,” said Swan.
During a conference call with investors, Swan stated, he expects capital expenditures on memory chips to be “a little bit lower” in 2019 “despite building self sufficiency” after Micron’s move.
Intel reported a rise in net income by $6.40 billion, which is equivalent to $1.38 per share; its net income for the quarter ended September 29 was $4.52 billion. Excluding items, Intel earned $1.40 per share.
Net revenues rose by 18.7% to $19.16 billion against an analysts average expectation of $18.11 billion.