Intel Corporation (NASDAQ:INTC) seems to be getting results from its cost cuts, but that apparently isn’t enough for shareholders. The chipmaker reported second-quarter earnings after the bell on Wednesday, and the company managed to beat Wall Street estimates. Nonetheless, INTC stock was off a few percent in early after-hours trading.
For the second quarter, Intel earnings came to 59 cents per share on an adjusted basis, beating expectations for 53 cents per share. But INTC appears to be struggling to gin up new business; revenues came to $13.53 billion, which showed up just shy of a consensus mark of $13.54 billion.
Intel did post third-quarter guidance that beat expectations, however. Intel sees Q3 revenues coming in at $14.9 billion; the analysts were pegging sales of $14.63 billion.
Lifting Intel’s Q2 was a 5% improvement in data center group sales to $4 billion, though that figure did fall short of estimates for $4.16 billion.
In the press release, INTC CEO Brian Krzanich summed up the situation fairly well:
“While we remain cautious on the PC market, we’re forecasting growth in 2016 built on strength in data center, the Internet of Things and programmable solutions.”
Yes, the company is in the midst of a major transition, moving away from its reliance on the declining PC market. This has, in part, helped to provide some juice to Intel stock lately. But it could be tougher to keep up the gains, especially since restructurings can often be uneven and unpredictable. After all, INTC is moving into highly competitive categories like cloud computing and the Internet-of-Things (IoT). Consider that during the latest quarter, the IOT segment suffered a 2% drop to $572 million.
Investors in INTC stock should be worried about some recent major moves in the industry, such as SoftBank Group Corp.’s (OTCMKTS:SFTBF) $32 billion acquisition for rival ARM Holdings PLC (NASDAQ:ARMH). The deal should mean more resources to bolster the business as well as access to more global markets.
Then there is competition from non-chip operators. For example, Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) has released its own chip offerings that are focused on growth areas like machine learning. There’s also buzz that other players may be developing their own chipsets, such as Facebook Inc (NASDAQ:FB).
INTC Stock Hits a Bump
Intel shares reacted by sliding roughly 3% in the first few minutes of Wednesday’s after-market trade. Prior to Wednesday’s report, INTC stock had climbed some 25% out of its February lows. The rally was paused in late April and May despite a first-quarter earnings report that saw Intel earnings and revenues beat analyst estimates. Intel also announced a planned workforce reduction of 11%, or roughly 12,000 jobs worldwide.
Things got back into high gear again in June thanks to a chip order from Apple Inc. (NASDAQ:AAPL) to replace some Qualcomm, Inc. (NASDAQ:QCOM) parts in its next handset. Then following the late-June Brexit dip and recovery, INTC stock sailed higher amid a few other headlines.
Intel reportedly was interested in selling off its Intel Security unit. The chipmaker also announced a partnership with BMW and Mobileye NV (NYSE:MBLY) that would see the trio work together to create driverless car technology.
Yet the fact remains that much of the business for Intel comes from PCs and the datacenter segment. And it likely will take some time for the higher growth segments to really have a material impact.
This doesn’t imply that INTC is headed for a bearish long-term move. If anything, the relatively weak selloff shows some amount of bottoming. Cost cuts should help the company crank out strong cash flows, and Intel shares also pay a decent dividend yield of about roughly 3%, so that all adds some padding.
But for investors looking for growth, that’s going to be hard to come by in Intel.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of books like the Mobile Marketing Playbook. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.