
Intel Shows PC Business Isn't Falling Off a Cliff, but For How Much Longer?
NEW YORK (TheStreet) -- Intel (INTC) - Get Report demonstrated that while the PC business is contracting, it's able to maintain pricing power. Its Data Center business, which has long been touted by many bulls, is a different story altogether.
Santa Clara, Calif.-based Intel said its Data Center Group saw 12% year-over-year revenue growth to $4.14 billion in the third quarter, but, the continued weakness in the enterprise led Intel to lower its target for the group, which has been Intel's strongest in recent memory.
Intel's largest group, its Client Computing Group, which houses both mobile and PC chips, saw revenue decline 7% year-over-year to $8.51 billion, as volume fell 19%, but the average selling price rose 15%.
For the third quarter, Intel earned 64 cents a share on $14.47 billion, better than the 59 cents and $14.22 billion analysts surveyed by Thomson Reuters expected. Gross margins, a closely watched level for Intel, came in at 63%, a tick up from the 62.5% in the second quarter.
Shares of Intel were down 2% in early Wednesday trading, falling $31.39.
With Intel performing slightly better than feared in its PC business, that throws some cold quarter on the fears the industry is still extremely weak. Research firm Gartner recently noted that worldwide PC shipments fell 7.7%, down to 73.7 million in the third quarter, with all major manufacturers experiencing a decline, except for Apple (AAPL) - Get Report , which also has Intel chips inside its Macs. Research firm IDC was bleaker than Gartner, showing sales falling 10.8% year over year to 71 million units.
Intel cut its capital spending plans for 2015 to $7.3 billion, down some $400 million. CFO Stacy Smith explained this as "upgrading" an existing piece of chip equipment, which pushed new equipment out until next year. Smith then proceeded to say that capital spending would be up in 2016.
Here's what analysts had to say about the quarter:
MKM Partners analyst Ian Ing (Buy, $40 PT)
"Intel delivered an EPS beat and raise report with mixed metrics. While PCs are (finally) starting to stabilize, the process could "take a year or so" to play out as Macro continues to weigh on the emerging markets and non-consumer. Macro also weighs on Enterprise sales, resulting in lowered 2015 Data Center Group (DCG) growth expectations. Despite Macro, we think the stock works into 2016 on PC stabilization, clarity on the 3D Crosspoint memory opportunity (not reflected in DCG growth targets), DCG expanding beyond CPU chips (22% of "Other" sales in 2018 implies $3.6B in new revenue), and reasonable expectations and investments in challenging Tablet and Mobile markets. We maintain our Buy rating and $40 price target (16.8x our FY16E EPS of $2.39)."
KeyBanc Capital analyst Michael McConnell (Overweight, $37 PT)
"Gross-margin, spending and wireless outlooks impress. Q4 revenue was guided to $14.8 billion, up 2% q/q and in line with consensus. Gross-margin guidance of 62% topped our estimate of 60.5%, leading to estimated EPS of $0.63 vs. consensus of $0.60. While weak enterprise demand led Intel to lower its 2015 DCG target to low-double-digit growth y/y vs. a prior 15% y/y, we view higher margins, reduced capital spending ($7.3 billion from $7.7 billion), lower operating expenses (up 1% y/y vs. 3% prior), and higher wireless profits (2015 savings to now exceed $800 million) as meaningful offsets."
Deutsche Bank analyst Ross Seymore (Buy, $37 PT)
"Intel beat our 3Q expectations driven by strength in CCG and guided 4Q in line. Importantly, in CCG Intel's ASP improved (Skylake) while units under-shipped end demand (year-over-year). While DCG has slowed due to enterprise weakness, its growth remains double-digit, in line with DBe. Overall, our 2016 estimates remain unchanged, a feat few chip companies are likely to match. We expect Intel's shares to appreciate as PC headwinds lessen, DCG strength remains and mobile losses shrunk. Consequently, we maintain our Buy rating."
Canaccord Genuity analyst Matthew D. Ramsay (Buy, $39 PT)
"Amidst the recent market turbulence, Intel shares have proven resilient bolstered by a strong dividend, improving PC data points, and increasing clarity around the long-term data center growth strategy. Against muted expectations, Intel delivered a solid Q3/15 results driven by better-than-expected CCG revenue while DCG grew slightly below expectations. Overall, we maintain our bullish view on improving Intel fundamentals highlighted by an increasing mix of revenue and profit driven outside of the PC market. We remain confident in our long-term thesis centered on margin accretive DCG growth, a sharp additional cut in Mobile losses in 2016, solid IoT growth, and prudent management of the secular PC market decline. While Mobile losses remain heavy, we believe the shift to Cherry Trail and SoFIA products should quickly reduce the need for costly subsidies and dovetail nicely with cost synergy savings from combining the Mobile/PC businesses. We reiterate our BUY rating and $39 PT while introducing our 2017 estimates for mid-single digit revenue and earnings growth."








