Intel beats earnings estimates with $18.1B in revenues for Q3, but stock falls

Intel reported that its third quarter revenues and profits were above expectations as the chip giant beat Wall Street estimates. But its forecasts for future quarters put a damper on the results.

On a non-GAAP basis, Santa Clara, California-based Intel reported net income of $7 billion (up 54% from a year earlier), or $1.71 a share, on revenues of $18.1 billion, up 5% (up 5%) for the third quarter ended September 30.

Analysts were expecting a profit of $1.11 per share on $18.25 billion in revenue for the third quarter. However, investors appear to be spooked about something from the results. Intel’s stock is down 6% at $52.60 a share in after-hours trading.

“Q3 shone an even greater spotlight on the global demand for semiconductors, where Intel has the unique breadth and scale to lead. Our focus on execution continued as we started delivering on our IDM 2.0 commitments,” said Pat Gelsinger, Intel CEO, in a statement. “We broke ground on new fabs, shared our accelerated path to regain process performance leadership, and unveiled our most dramatic architectural innovations in a decade.”

He added, “We also announced major customer wins across every part of our business. We are still in the early stages of our journey, but I see the enormous opportunity ahead, and I couldn’t be prouder of the progress we are making towards that opportunity.”

Gelsinger is still excited because he returned to Intel earlier this year as CEO and gets his shot at turning Intel around after several hard years of manufacturing delays. Intel also faces heavy competition from Advanced Micro Devices (AMD), which has designed more innovative chips than Intel and gained market share for nearly three years in a row.

Economists have been concerned about the worldwide semiconductor shortage, which has been prompted by underinvestment in the early part of the pandemic and a huge surge in demand for tech products in different markets  Just about all chip companies are expanding now to meet that demand, and Intel recently said it would spend $20 billion on new manufacturing in Arizona.

Intel closed the quarter with 117,200 employees, up from 111,300 a year ago and 113,700 in the second quarter. For the full-year guidance, Intel said it expects to report earnings per share of $5.28 on revenue of $73.5 billion, unchanged from its earlier expectations. That may be why the stock is falling in after hours, as Intel beat its Q3 targets but did not raise earnings estimates.

In the third quarter, the company generated $9.9 billion in cash from operations and paid dividends of $1.4 billion.

The Client Computing Group reported Q3 revenues of $9.7 billion, down 2% due to lower notebook volumes amid industry-wide component shortages, offset by higher average selling prices.

The Datacenter Group reported record revenues of $6.5 billion, up 10%. Internet of things was a record $1 billion, up 54%. Mobileye was a record $326 million, up 39%. The NSG group was $1.1 billion, down 4%, while PSG was $478 million, down 16%. Intel said its enterprise portions of data center and IoT were strong amid recovery from the economic impact of COVID-19. Cloud purchases were down. There were some unique challenges in China related to the enterprise in the quarter, Gelsinger said.

In the quarter, Intel said that Amazon is the first customer to use the Intel Foundry Services packaging services, and it has partnered with Qualcomm on process technology and manufacturing for the future. Intel broke ground on two chip factories in Chandler, Arizona, three months ahead of schedule. Gelsinger said Intel aims to produce the “best transistors on the planet” for its outsourcing customers.

Business outlook

Intel’s guidance for the third quarter and full year includes both GAAP and non-GAAP estimates.

Intel said GAAP revenues for Q4 would be $19.2 billion, while non-GAAP revenues would be $18.3 billion. Earnings per share on a GAAP basis will be 78 cents a share, while non-GAAP will be 90 cents a share.

For the full year, Intel said GAAP revenues would be $77.7 billion, while non-GAAP revenues will be $73.5 billion. Those estimates are unchanged from the previous quarter. In 2022, Intel sees at least $74 billion in revenues. Over the next four to five years, Intel expects compound annual growth rate to improve, said Intel chief financial officer George Davis, in a conference call.

Earnings per share on a GAAP basis will be $4.50 a share, while non-GAAP earnings per share will be $5.28. Analysts were expecting $18.25 billion in revenues for Q4 and $73.6 billion in revenues for the calendar year. Intel also said the CFO, Davis, plans to retire in May. Intel is looking for a new CFO.

Intel also showed off Alder Lake, the code-name for its new processor architecture. Gelsinger said it is shipping to customers now. And it said its new Arc-branded gaming graphics chips and Ponte Vecchio graphics processing unit (GPU) architecture are looking promising.