On Thursday afternoon, Intel reported Q4 revenue of $20.21 billion (up 8% annually) and non-GAAP EPS of $1.52, comfortably beating consensus analyst estimates of $19.23 billion and $1.25.
Intel also guided for Q1 revenue of $19 billion (up 18% annually) and EPS of $1.30, well above consensus estimates of $17.25 billion and $1.04. And for the whole of 2020, it guided for revenue of $73.5 billion (up 2%) and EPS of $5.00, above consensus estimates of $72.4 billion and $4.66.
In addition, Intel hiked its quarterly dividend by 5% to $0.33. The dividend carries a 2% forward yield.
Here are some notable takeaways from Intel’s earnings report and call.
1. Cloud Server CPU Demand Rebounded Sharply
Driving much of Intel’s Q4 revenue beat: The company’s Data Center Group (DCG), which is responsible for server CPUs and various complementary products, saw revenue grow 19% to $7.2 billion, trouncing a $6.4 billion consensus.
This growth, in turn, was largely fueled by a 48% increase in DCG’s sales to cloud service providers, up from just 3% growth in Q3. DCG also saw its sales to telecom service providers, which have been benefiting from the replacement of proprietary telco hardware with Intel-powered servers, grow 14%. Sales to enterprise and government clients, which are pressured by weak enterprise hardware demand, fell 7%.
DCG also broadly got a lift from a 32% sales increase (improved from 12% in Q3) for non-CPU “adjacencies” such as Ethernet chips, ASICs and silicon photonics transceivers.
2. PC CPU Sales Were a Little Better Than Expected
In spite of ongoing manufacturing supply constraints for its PC CPUs, Intel’s Client Computing Group (CCG), which is responsible for PC and mobile products, saw revenue grow 2% to $10 billion, beating a $9.72 billion consensus.
Revenue related to Intel PC CPU platforms was roughly flat, while sales of modems and adjacencies (benefiting from solid demand for Apple’s (AAPL) 2019 iPhone lineup) grew 13%.
On its earnings call, Intel admitted that its PC CPU supply remains tight. However, it also forecast CPU shortages would ease over the course of 2020, with its supply of less powerful PC CPUs improving during the second half of the year.
3. Performance Was Mixed for the Smaller Business Segments
Intel’s Internet of Things Group (IOTG), which covers a number of offerings for embedded, IoT and edge computing end-markets, saw revenue grow 13% to $920 million. The Programmable Solutions Group (PSG), which covers FPGA sales, saw revenue drop 17% to $505 million (that likely spells share losses to Xilinx).
The Mobileye ADAS vision processor unit had another strong quarter, with revenue growing 31% to $240 million. The Non-Volatile Memory Solutions Group (NSG), which covers sales of flash memory and Intel’s Optane next-gen memory, saw revenue grow 10% to $1.2 billion. However -- unlike all of Intel’s other segments, which reported profits -- NSG reported a $96 million operating loss, up from $19 million a year earlier.
4. Management Struck a Cautious Tone About 2020 Demand Beyond Q1
With Intel guiding for 18% Q1 revenue growth, the company’s guidance for just 2% full-year growth implies revenue will be down about 2.5% annually during the last nine months of the year.
Though CCG is expected to see 10%-plus growth in Q1, its revenue is expected to drop by a low-single digit percentage over the whole of 2020. Intel’s “data-centric businesses” -- they include DCG, PSG, NSG, IOTG and Mobileye -- are expected to see 25%-plus growth in Q1, but only high-single digit growth for the full year, with DCG growing at a slightly slower clip.
Intel attributes this expected growth deceleration to a few factors:
- Business PC sales are expected to cool, following strong upgrade activity in late 2019 and early 2020 thanks to Microsoft’s ending of Windows 7 support.
- Modem sales will fall sharply in the second half of the year, as Apple turns to Qualcomm (QCOM) for the modems inside of the 5G-enabled iPhones due this fall (Intel said last year it plans to exit the smartphone modem market).
- Following very strong Q1 sales to cloud clients, Intel expects “more modest” cloud capacity expansion for the rest of the year, as cloud providers “move to a digestion phase.”
- Intel expects “an increasingly competitive environment as we move through the year.” This is undoubtedly a reference (at least in large part) to AMD, which is on stronger competitive footing in the PC and server CPU markets than it has been in a very long time.
5. Capital Spending Will Grow Again in 2020
Intel has set a 2020 capex budget of $17 billion, up from reported 2019 capex of $16.2 billion (a little above prior guidance) and reported 2018 capex of $15.2 billion. CFO George Davis said that over half of this spending will be related to additional fab space and equipment for Intel’s next-gen, 7-nanometer and 5-nanometer manufacturing process nodes.
Equipment suppliers Applied Materials (AMAT) and Lam Research (LRCX) each rose about 1% in after-hours trading thanks to Intel’s capex guidance, which follows strong 2020 capex guidance from Taiwan Semiconductor (TSM) a week ago.
6. Intel Continues Running a Tight Ship
Though Intel’s revenue rose 8% annually in Q4, its operating expenses fell fractionally to $4.93 billion, with R&D spend dropping slightly and other opex rising slightly. And though Intel’s headcount was up by 3,400 annually to 110,800, it fell by 1,100 sequentially.
Intel also disclosed that it’s carrying out additional layoffs that will affect less than 1% of its workforce. And it guided for opex to equal about 26% of its 2020 revenue, a figure that suggests (given Intel’s revenue guidance) opex will be down slightly this year.
7. Plenty of Stock Was Repurchased
Three months after adding $20 billion to its buyback authorization, Intel disclosed that it repurchased 63 million shares in Q4. Davis added that $3.5 billion worth of stock has been repurchased since the buyback hike was announced on Oct. 24th.