Dwelling Deeper In Intel's Q2 Earnings Beat, Optimistic Q3 Estimates

Intel Corp INTC reported second-quarter FY21 flat year-on-year revenue of $19.6 billion, surpassing the analyst consensus of $17.55 billion. Though the analysts were expecting a revenue decline, Intel managed to keep the revenue intact with growing volume.

Despite the beat, a deeper reading in the earnings and CEO comments did not impress the investors.

Segment Revenue: Intel's segments had a mixed performance. Client Computing Group (CCG) revenue increased 6% Y/Y to $10.1 billion, but the critical Data Center Group (DCG) revenue decreased 9% Y/Y to $6.5 billion.

Internet of Things Group (IOTG) revenue rose 47% Y/Y to $984 million, and Mobileye revenue improved 124% Y/Y to $327 million.

Non-volatile Memory Solutions Group (NSG) revenue declined 34% Y/Y to $1.1 billion, and the Programmable Solutions Group (PSG) revenue was lower by 3% Y/Y at $486 million.

PC platform volumes improved 33% Y/Y. Mobileye closed ten additional design wins for over 16 million total lifetime units. It suggests that the average selling prices declined with volume growth.

Margins & Net Income: Intel kept up the margins due to the semiconductor shortage. The non-GAAP gross margin expanded 290 basis points to 59.2%, and the non-GAAP operating margin growing 60 basis points to 31.6%.

Intel's non-GAAP net income rose 6% Y/Y to $5.2 billion, translating to Non-GAAP EPS of $1.28, which beat the analyst consensus of $1.09.

Intel generated $8.7 billion in operating cash flow and paid dividends of $1.4 billion. It held $24.9 billion in cash and equivalents.

Outlook: Intel's Q3 outlook surpassed the analyst estimates. It sees revenue of $19.1 billion versus analyst consensus of $18.1 billion. It expects non-GAAP EPS of $1.10 compared to the analyst consensus of $1.08. However, Intel expects the non-GAAP gross margin to dip in Q3 at 55%.

Conference Call: Intel sees "sustained strength" in PC demand and expects the total addressable market to continue to grow in 2022. It expects to announce more U.S./European fab sites by year-end.

Intel said that FGPA demand significantly exceeds supply, while CCG sales are expected to fall in Q3 due to supply constraints. DCG sales are expected to grow by Q4.

Intel CEO Patrick Gelsinger expects industry consolidation with smaller players not keeping up with the demand.

Price action: INTC shares traded lower by 2.70% at $54.45 in the premarket session on the last check Friday.

Photo by Raimond Spekking / CC BY-SA 4.0 (via Wikimedia Commons)