Shares of Intel (INTC) plunged on Friday morning after the company provided a weak revenue forecast for 2019. Intel said it expects sales to total $69B for 2019, below analysts' estimate of $71.05B. Following the quarterly report, analysts said the news was likely positive for AMD (AMD), but negative for Nvidia (NVDA).
EARNINGS AND GUIDANCE: On Thursday after the market close, Intel reported first quarter adjusted earnings per share of 89c, beating analysts' consensus estimate of 87c, while revenue of $16.1B also beat the $16.02B consensus. For the quarter, Intel said its PC-centric business achieved 4% growth, while data-centric revenue fell 5%. Its Data Center Group reported revenue of $4.9B for the quarter, down from $5.2B during the same quarter last year. Intel's enterprise and government revenue fell 21%, while the communications service provider segment declined 4%.
Looking ahead, Intel cut its fiscal 2019 adjusted EPS view to $4.35 from $4.60 and lowered its revenue view for the fiscal year to about $69B from roughly $71.5B. Analysts expected FY19 EPS of $4.51 on revenue of $71.05B prior to the guidance reset. The company sees second quarter adjusted EPS of 89c on revenue of about $15.6B, below the consensus of $1.01 and $16.85B, respectively.
"Results for the first quarter were slightly higher than our January expectations," Chief Executive Officer Bob Swan said in a statement. "We shipped a strong mix of high-performance products and continued spending discipline while ramping 10nm and managing a challenging NAND pricing environment." He added that "Looking ahead, we're taking a more cautious view of the year, although we expect market conditions to improve in the second half. Our team is focused on expanding our market opportunity, accelerating our innovation and improving execution while evolving our culture. We aim to capitalize on key technology inflections that set us up to play a larger role in our customers' success, while improving returns for our owners."
WHAT'S NOTABLE: Last week, Intel said that it plans to exit the 5G smartphone modem business and "complete an assessment of the opportunities for 4G and 5G modems in PCs, internet of things devices and other data-centric devices." The company added that it will still invest in its 5G network infrastructure business and that while it plans to continue meeting current customer commitments for its existing 4G smartphone modem product line, it does not expect to launch 5G modem products in the smartphone space, including those originally planned for launches in 2020.
On its earnings conference call, Intel told analysts that it is "conducting a strategic assessment of 5G modems for the PC and IoT sectors."
In an interview with The Wall Street Journal, CEO Swan said the chip company decided to exit the mobile 5G business after Apple (AAPL) and Qualcomm (QCOM) reached a six-year patent licensing deal and a multiyear agreement for the latter to supply chipsets to Apple. "In light of the announcement of Apple and Qualcomm, we assessed the prospects for us to make money while delivering this technology for smartphones and concluded at the time that we just didn't see a path," Swan said. Asked whether Intel was looking at selling the 5G smartphone modem business, he said the company is "evaluating alternatives on what's the best course for our IP and our people."
POSITIVE FOR AMD, NEGATIVE FOR NVIDIA: Stifel analyst Kevin Cassidy noted that Intel's management said the data center inventory and capacity digestion period they had described in January was more pronounced than expected, calling out increased headwinds in China. He views the weaker data center outlook as negative for Nvidia, but sees less risk to AMD estimates given the company's market share growth and limited data center exposure in China. Also, Intel's guidance for Q2 PC revenue to decline high single digits could suggest AMD market share gains and/or Intel customers reducing inventory following many quarters of CPU shortages, said Cassidy. He views the likely shift away from HDDs indicated by Intel as negative for Seagate (STX) and Western Digital (WDC). SunTrust analyst William Stein said that the immediate weakness in Intel's Data Center Group could be a negative for suppliers like Nvidia.
Jefferies analyst Mark Lipacis said his field checks indicate AMD share gains will ramp in Q3, and he expects further cuts to consensus estimates for Intel "to follow shortly after."
Baird analyst Tristan Gerra downgraded Western Digital to Underperform, citing what he said was an "increasing disconnect" between significant year-to-date appreciation in the stock and a continued deterioration in NAND flash fundamentals as highlighted by recent reports from Intel, Hynix, and Nidec. One of the three key reasons Intel provided for its sequentially lower operating expense guidance for Q2 was its expectation for an "incrementally more challenging NAND pricing environment," noted Gerra. A second-half seasonal improvement in NAND does not mean a cycle bottom, said Gerra, who thinks profit taking could take place ahead of a "seasonally and cyclically weak" first half of 2020 outlook.
Morgan Stanley analyst Joseph Moore said he remains negative on semis as a group and he does not see Intel as immune from the environment, which he said the company's report showed is worse than his below-consensus projections indicated. However, while numbers were even worse than he expected, Intel's new CEO Bob Swan is expressing openness to ideas that Moore thinks could improve cash flow and improve focus on the core business, the analyst said.
PRICE ACTION: In morning trading, shares of Intel are down 9.8% to $51.98. Meanwhile, AMD is down 1.3% and Nvidia is down about 5%, Western Digital has dropped 7% and Seagate has declined 3%.
Intel
-5.62 (-9.76%)
AMD
-0.34 (-1.23%)
Nvidia
-10.59 (-5.67%)
Apple
-0.98 (-0.48%)
Qualcomm
+1.07 (+1.26%)
Seagate
-1.28 (-2.78%)
Western Digital
-3.48 (-6.57%)