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Soft Full-Year Guidance Undermined Intel's Strong Q1 Results

By Anders Bylund – Apr 26, 2019 at 7:49PM

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The chipmaker lowered the full-year bar for both sales and earnings even though the first-quarter results came in above management's expectations.

Semiconductor giant Intel (INTC -1.11%) reported results Thursday evening, covering the first quarter of its 2019 fiscal year. The company exceeded management's guidance, but the outlook for the rest of the year was reduced. Here's a closer look at Intel's first-quarter report.

Intel's first-quarter results: The raw numbers

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Revenue

$16.1 billion

$16.1 billion

0%

Net income

$4.0 billion

$4.5 billion

(11%)

GAAP earnings per share (diluted)

$0.87

$0.93

(6.5%)

Data source: Intel.

What happened with Intel this quarter?

  • These results held up against Intel's projections for the first quarter, which called for GAAP earnings near $0.81 per share on top-line sales near $16.0 billion.
  • In terms of Intel's newfangled business segment structure, PC-centric operations delivered 4% year-over-year revenue growth while data-centric sales fell 5%. Within the data-focused unit, Mobileye's sales rose 38% to $209 million while memory chip revenues fell 12%. The remaining three subsections of the data-centric division held their sales comparisons within 8% of the previous year's period.
  • Intel's share buyback program has now reduced the diluted share count by 4.7% over the last four quarters. The company retired 49 million shares in the first quarter alone, at a cash value of $2.53 billion. The program has another $14.9 billion of authorized buybacks left.
Large, blue Intel logo in the form of a sculpture in a plaza at the company's headquarters.

Image source: Intel.

Looking ahead

Intel's management provided the following guidance for the second quarter:

  • Revenues should fall roughly 8% year over year, stopping near $15.6 billion.
  • GAAP earnings are expected to land in the neighborhood of $0.83 per diluted share, 21% below the year-ago period's result.

The company's full-year projections were also tweaked, almost always downward.

  • In the light of the first-quarter results, revenues for the year should add up to approximately $69 billion. That's down from the $71.5 billion outlook from three months ago and roughly 2.5% below the total sales of 2018.

What management had to say

In the earnings call, CEO Bob Swan was erroneously introduced with an interim title even though Intel made his appointment permanent in January. Swan leveraged that mistake into a discussion of what could have been better in the first quarter.

"With the interim introduction, I thought on our outlook I was getting demoted already," Swan started off. He added:

But look, coming off a record 2018, our top line results came in slightly higher than expectations, with upsides in the PC and IoT segments, offset by incremental NAND [memory] pricing weakness. Total revenue of $16.1 billion was flat year-over-year, as our PC-centric business grew 4% and our data-centric businesses were down 5%. The team executed well, though underlying trends are concerning, and as a result, we've revised our expectations down for the full year.

The main drivers behind the modest full-year guidance are weak orders from China, a distribution chain saturated with excess inventories, and continued pressure on memory chip prices.

Anders Bylund owns shares of Intel. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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