Intel Corp (NASDAQ:INTC) saw its margins tumble in the third quarter as consumers bought cheaper computers and businesses clamped down on data center spending in the face of the coronavirus pandemic.
The numbers, posted after the New York market close on Thursday, showed the chipmaker earned $1.11 per share in the quarter to September 30, 2020, excluding one-off items, which was in line with estimates.
But Intel sold a higher volume of less-profitable chips in its PC business, driving operating margins down to 36% in the quarter from 44% a year earlier.
The company said it is expecting fourth-quarter revenue of about $17.4 billion; analysts were expecting revenue of $17.3 billion.
The company, the dominant provider of processor chips for PCs and data centers, said in July that its next generation of chipmaking technology was six months behind schedule.
Intel said Thursday that a 10-nanometer chip factory in Arizona had reached full production capacity and that it now expects to ship 30% higher product volumes in 2020 compared to January expectations.
The coronavirus pandemic has given Intel a boost in the form of surging laptop sales as employees and students work and learn from home. Sales in its PC group were $9.8 billion, beating analyst estimates for $9.09 billion.
However, Intel faces a challenge from rivals such as Advanced Micro Devices Inc and Nvidia Corp which use outside manufacturers and have capitalized on Intel’s woes to gain market share in both data centers and PCs.
Earlier this week, Intel said it would sell a money-losing commodity memory chip business to Korea’s SK Hynix in a $9 billion all-cash deal, with Intel keeping a more advanced memory chip unit and using the cash to invest in other products.
In pre-market New York trading on Friday, Intel shares were 9.6% lower at $48.73, having shed 10% after-hours on Thursday.
In a note to clients following the results, analysts at Wedbush repeated an ‘underperform’ rating on Intel and lowered their target price for the stock to $48 from $51 “based on a blended multiple (net debt) of: ~10X FY2021 earnings and ~3-4x EV/S, equivalent to where the stock has traded over the last 2 years.”
The Wedbush analysts added: “Intel exceeded prior consensus estimates and modestly lifted its full-year guide. However, DCG sales fell short of expectations (contributing to a GM miss) as enterprise/government sales weakened significantly. Moreover, the company guided for further deterioration in this segment as hyperscale spend is expected to tick down in CQ4, while enterprise remains weak, with DCG weakness again expected to weigh on INTC’s GMs. We believe data center results and margin weakness were the primary factors weighing on the stock after hours.”
— Adds Friday pre-market share price, analyst comment —