Chip giant Intel (NASDAQ:INTC) ripped the cover off the proverbial ball when it reported its earnings results after market close on Oct. 25. The company's third-quarter results blew away both the company's own guidance as well as analyst consensus, and its fourth-quarter guidance was significantly ahead of what analysts were expecting.
Although the results arguably spoke for themselves, Intel executives provided valuable insight into the business on the conference call following the earnings release. Here are three items from the call that I think investors should pay close attention to.
About that chip shortage...
On the call, interim CEO and CFO Bob Swan stated that the company is "focused on doing everything possible not to constrain our customers' growth." To that end, Swan observed, Intel has "increased [its] CapEx by $1.5 billion since January to a record $15.5 billion" and has "re-positioned some 10nm (nanometer) capacity to 14nm..."
Intel had signaled back in July that it expected its capital expenditure for the entirety of 2018 to be $15 billion, give or take $500 million, so the chip giant is clearly expecting its 2018 CapEx to come in at the high end of that range.
Although the organization is making further investments in its manufacturing capacity, Swan admitted that it won't be able to meet all the demand for its products in the fourth quarter of this year.
"Our focus has been prioritizing, in conjunction with our customers, Xeon and Core processors," Swan said. "And therefore by definition, the lower end of the PC and the [Internet of Things] business is being constrained."
How bad will it get for Intel's Internet of Things Group (IoTG)? According to Swan, "[Due] to supply constraints, we anticipate IoTG revenue will be down approximately 15% sequentially."
Progress on 10nm
Ahead of Intel's earnings, a report surfaced claiming that the company had cancelled work on its upcoming 10nm manufacturing technology. The company swiftly denied that report, and provided an update on how the technology development is progressing during the earnings call.
"We continue to make good progress on 10nm," Swan said. "Yields are improving, and we're on track for 10nm-based systems on shelves during the holiday season."
Later on, in response to an analyst's question, Intel chief engineering officer Murthy Renduchintala stated that "[W]e're still very much reinforcing and reaffirming our previous guidance that we believe that we'll have 10nm shipping by holiday of 2019," adding that, "if anything, I feel more confident about that at this call than I did on the call a quarter ago."
Insight into 2019
The chipmaker hasn't yet issued financial guidance for 2019 -- it will likely do so when it reports on fourth quarter results in January -- but Swan did offer some insight into the company's expectations for next year.
"As we look forward to 2019, we expect to deliver another record year for the company," Swan asserted. This suggests that the company is expecting revenue to be more than $71.2 billion, and that non-GAAP earnings per share (EPS) will exceed $4.53 next year.
Current analyst consensus calls for Intel to generate $71.68 billion in sales and $4.26 in EPS in 2019. While the $71.68 billion figure would qualify as record company revenue (assuming that 2018 sales come in at $71.2 billion, as management has guided), given Swan's comments, analysts' outlook on 2019 EPS now looks too low. I'm anticipating that in the wake of this earnings release and conference call, analysts will lift their 2019 estimates.