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Intel Reports Earnings on Thursday: 5 Important Things to Watch

Sales figures for Intel's PC and server CPU divisions are worth keeping an eye on, as are comments about customer inventories and Intel's product launch schedule.
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Following its recent rally, Intel’s  (INTC) - Get Intel Corporation Report stock is nearly unchanged on the year, as investors wager that strength in end-markets such as notebooks and cloud servers will offset pressures elsewhere.

Thanks to such expectations, Intel’s sales and earnings estimates have fallen only slightly from January levels heading into its Q1 report. Currently, the consensus among analysts polled by FactSet is for the chip giant to post Q1 revenue of $18.63 billion (up 16% annually) and non-GAAP EPS of $1.28 (up 44%).

Intel typically provides quarterly and full-year guidance in its reports. With Intel having cautioned in January that its growth will decelerate after Q1, the consensus is for Q2 revenue of $17.76 billion (up 8%) and EPS of $1.19, and for 2020 revenue of $71.96 billion (roughly flat) and EPS of $4.83.

Here are a few things to watch as Intel posts its Q1 report on Thursday afternoon and hosts an earnings call at 5 P.M. Eastern Time.

1. PC CPU Demand (and Supply)

While Q1 PC shipments were hurt by the COVID-19 pandemic’s impact on Chinese PC production and demand, they benefited late in the quarter from notebook purchases made to support remote work and learning activities. Earlier this month, Intel CEO Bob Swan confirmed that his firm’s PC CPU sales (much like the PC-related chip sales of some other firms) have gotten a lift from this trend.

Currently, the Q1 revenue consensus for Intel’s Client Computing Group (CCG, it covers PC and mobile chip sales) stands at $9.26 billion (up 8%). Worth keeping an eye on: Any comments about desktop CPU demand (possibly pressured by weaker corporate desktop spending and tough competition from AMD  (AMD) - Get Advanced Micro Devices, Inc. Report) and/or manufacturing supply constraints.

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2. Cloud and Enterprise Server CPU Demand

Intel forecast in January that its Data Center Group (DCG), which handles sales of server CPUs and certain other data center products, would have a big Q1 thanks to strong orders from cloud giants (the proverbial hyperscalers), before seeing hyperscaler demand cool in subsequent quarters. And in recent weeks, cloud capital spending has gotten a boost from capacity upgrades made to support usage spikes for various remote work and digital media apps/services.

On the flip side, server spending by traditional enterprises was under pressure going into Q1, and may have taken a fresh hit lately. Nonetheless, with cloud and telecom service providers now accounting for a majority of DCG’s sales, the consensus is for DCG’s revenue to be up 28% in Q1 to $6.27 billion.

3. Comments About Customer Inventories

Chipmakers such as NXP Semiconductors  (NXPI) - Get NXP Semiconductors NV Report and Microchip Technology  (MCHP) - Get Microchip Technology Incorporated Report have signaled that customers have been trying to build up their chip inventories, as they try to protect themselves against potential supply disruptions. So has Taiwan Semiconductor  (TSM) - Get Taiwan Semiconductor Manufacturing Co. Ltd. Report, which manufacturers chips for a slew of Intel rivals.

As a result, it wouldn’t be surprising to see Intel field an analyst question or two about how much its near-term sales are benefiting from customer inventory-building.

4. The Capex Budget

In January, Intel set a 2020 capex budget of $17 billion, above reported 2019 capex of $16.2 billion and 2018 capex of $15.2 billion. With TSMC having just reiterated its 2020 capex budget and chip equipment makers reporting that they continue seeing strong orders for the time being, it wouldn’t be surprising to see Intel keep its capex budget at or near $17 billion.

5. Comments About Planned 10nm Product Launches

Tiger Lake, the second Intel notebook processor platform to rely on its advanced 10-nanometer (10nm) manufacturing process node, has been scheduled to see a broad rollout during the second half of 2020. And though there has been limited clarity about 2020 volumes, Intel has also promised to ship its first 10nm server CPUs (based on a platform known as Ice Lake) before year’s end.

Have COVID-19 lockdowns caused any push-outs for Intel’s 10nm product roadmap, or are launch schedules unchanged? The company might let us know on its earnings call.