Intel Shares Plunge On Falling Margins, Increased Competition In Q3

Intel Corporation INTC reported a weak third-quarter, which barely met revenue and earnings per share estimates.

Data-centric revenue fell 10% year-over-year, with DCG revenue falling 7% YoY to $5.9 billion.

In the DCG group, cloud revenue grew 15% YoY due to higher demand from work-at-home, but Enterprise & Government market due to a challenging macro environment.

PC-centric revenue grew 1% YoY to $9.8 billion due to higher demand for PCs. The average selling price (ASP) was down 6% due to an increase in entry-level education PCs.

Gross margins fell a substantial 560 basis point YoY to 54.8%; Operating income fell 22% YoY to $5.4 billion.

The company's 10nm Arizona facility is fully operational and expects to ship 30% higher production volumes.

Outlook: Intel expects Q4 revenue of $17.4 billion, a non-GAAP operating margin of 26.5%, and an EPS of $1.10.

For the full-year, Intel sees an operating margin of 31.5% and operating cash flow in the range of $32.2 billion to $33 billion.

Highlights from the conference call: "We're seeing increased competition in the second half of the year, but not different levels of competition than we thought. We feel good about where we are on the year. So I would say it's really a mix story and a very different mix than we thought going in," said CFO George Davis.

"10-nanometer accelerated because -- as it's displacing 14-nanometer, there's a margin impact from that. So we think, even as we see cost initiatives that are improving the cost structure of 10-nanometer, the teams are working on the yield performance of 10-nanometer all that should show up as positive," said George Davis.

Rosenblatt maintains a Sell rating on the Intel with a price target of $40.

See Intel's earnings presentation here.

Price Action: INTC shares are down 9.5% to $48.76 in the pre-market session at last check Friday.

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