Intel (INTC) beat Wall Street’s bottom- and top-line estimates, but there was still nothing in the Intel earnings release to change the thesis on INTC stock.
Better-than-expected results are always a good thing during earnings season, but Intel earnings were still lackluster on an absolute basis and an in-line forecast isn’t enough to be a spark for INTC stock.
As expected, earnings and revenue declined, hurt by a strong dollar, weak global economy and — especially — slumping shipments of the personal computers that use INTC chips.
Indeed, the market knew PCs were going to be a problem heading into the Intel earnings release. Third-quarter PC shipments fell 7.7% year-over-year, according to market researcher Gartner.
In better news, INTC’s data-center group showed robust growth. Having missed out on mobile — the most important market of the day — INTC is going to need is data center business to drive the stock in a world of shrinking PC sales.
All in all, Intel earnings fell to $3.11 billion, or 64 cents per share, down from $3.32 billion, or 66 cents per share, a year earlier. Analysts, on average, were expecting earnings of 59 cents per share, according to a survey by Thomson Reuters.
Revenue dipped slightly to$14.47 billion from $14.55 billion. The Street was looking for top-line results of $14.22 billion.
INTC Slowly Swapping PCs vs. the Cloud
As mentioned, INTC’s big weakness continues to be the slowly melting iceberg of the PC market. The company’s client computing group — the segment that makes chips for personal computers — saw revenue fall 7% year-over-year to $8.5 billion.
However, the data center group — which serves the cloud-computing industry — posted a 12% jump in revenue to $4.1 billion.
In another area of growth, INTC’s Internet of Things Group — which makes chips for everything except PCs — chipped in revenue growth of 10% to $581 million.
All things considered, the part of INTC that makes chips for PCs did pretty well given that the entire industry is a wreck these days. Shipments are forecast to fall nearly 9% in 2015 with more weakness seen next year.
But that’s a story that’s adequately discounted in the INTC stock price by now. By the same token, the data group earnings didn’t move the needle on INTC stock much, either.
True, INTC says the data center business can be good for a compound annual growth rate of 15% per year — and it’s already half as large as the chip-making segment — but this is a slow-motion handoff that’s well understood by the market.
That’s probably why INTC stock barely budged after the closing bell, despite the earnings beat. This was just the same-old report from the world’s largest chipmaker.
After all, the big picture remains the same. INTC is a massive and mature business that missed out on mobile and can’t become something other than a PC supplier fast enough.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
