Intel Corporation INTC reported soft first-quarter 2023 results with narrower-than-expected loss, largely due to PC inventory correction and contraction in the server market. Both revenues and earnings declined year over year owing to a challenging macroeconomic environment, uncertain business conditions and softening demand trends. However, both the bottom line and top line beat the respective Zacks Consensus Estimate.
The company reported a GAAP net loss of $2,758 million or a loss of 66 cents per share against a net income of $8,113 million or $1.98 per share in the year-ago quarter. The significant decline was due to a sudden and rapid fall in economic activity and a slowdown in demand as the industry navigated multiple global challenges, resulting in top-line contraction.
Non-GAAP loss in the reported quarter was $169 million or a loss of 4 cents per share against non-GAAP net income of $3,582 million or 87 cents per share a year ago. The bottom line beat the Zacks Consensus Estimate by 12 cents.
GAAP revenues in the reported quarter were $11,715 million, down 36.2% year over year, owing to softness in the end consumer and educational market demand. In response to supply chain issues, the company is closely collaborating with customers and suppliers to effectively address their most critical needs. The top line beat the consensus estimate of $11,012 million.
Intel Corporation Price, Consensus and EPS Surprise
Intel Corporation price-consensus-eps-surprise-chart | Intel Corporation Quote
By segments, Client Computing Group (CCG, 49.2% of total operating segment revenues) revenues were down 38.1% year over year to $6,625 million. This was largely due to global TAM (total addressable market) weakness, particularly in consumer, education and small/medium business markets, along with PC demand softening and inventory reduction by customers.
Datacenter and AI Group (DCAI, 31.7%) revenues fell 38.8% year over year to $4,304 million. This was due to OEM inventory reductions and competitive pressures. Intel witnessed TAM contraction across all CPU market segments. The company has a singular focus on regaining performance and TCO leadership across all workloads and use cases from enterprise to cloud, as demand is expected to remain soft in the second quarter.
Network and Edge Group (NEX, 12.7%) revenues declined 30.4% to $1,489 million as elevated inventory levels and soft demand trends affected segment sales.
Mobileye (3.9%) revenues were up 16.2% to $458 million, primarily driven by higher demand for EyeQ products. Intel Foundry Services (IFS, 1%) revenues were $118 million, down 24.4%, while All Other (1.4%) revenues were $165 million, falling 38.4% year over year.
Other Operating Details
Non-GAAP gross margin was 38.4%, down 1,470 basis points (bps) on a year-over-year basis. Non-GAAP operating margin contracted 2,560 bps to a negative 2.5%.
CCG's operating income was down 80.9% year over year to $520 million and DCAI's operating loss was $518 million against an operating income of $1,393 million, primarily due to significant revenue contraction. NEX's operating loss was $300 million against operating income of $416 million, while that from Mobileye declined to $123 million from $148 million a year ago.
Cash Flow & Liquidity
As of Mar 31, 2023, Intel had cash and cash equivalents of $8,232 million, with $48,836 million of long-term debt. In the first quarter of 2023, Intel utilized $1,785 million of cash for operating activities against cash flow of $5,891 million in the year-ago period.
For the second quarter of 2023, Intel expects non-GAAP revenues to be $11.5-$12.5 billion. Non-GAAP gross margin is likely to be 37.5%. Non-GAAP loss is expected to be around 4 cents per share. The company anticipates intense market volatility, depleting customer inventory levels and continued business uncertainties. Intel expects the macroeconomic headwinds to ease gradually in the second half of the year.
Zacks Rank & Stocks to Consider
Intel currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Arista Networks, Inc. ANET, carrying a Zacks Rank #2 (Buy), is likely to benefit from the strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 14.2% and delivered an earnings surprise of 14.2%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
Juniper Networks, Inc. JNPR carries a Zacks Rank #2. It has a long-term earnings growth expectation of 7% and delivered an earnings surprise of 5.2%, on average, in the trailing four quarters.
Juniper is leveraging the 400-gig cycle to capture hyperscale switching opportunities inside the data center. The company is set to capitalize on the increasing demand for data center virtualization, cloud computing and mobile traffic packet/optical convergence.
Splunk Inc. SPLK, sporting a Zacks Rank #1, is another key pick. San Francisco, CA-based Splunk provides software solutions that enable enterprises to gain real-time operational intelligence by harnessing the value of their data. The company’s offerings enable users to investigate, monitor, analyze and act on machine data and big data, irrespective of format or source, and helps in operational decision making.
Splunk’s software offerings enable users to have deep insight of their data on a real-time basis, thereby making the operational decision-making process faster. It delivered a trailing four-quarter earnings surprise of 131.1%, on average. Splunk has a long-term earnings growth expectation of 24.1%.
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