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Dow Jones Dragged Down by Intel Earnings Disaster, Mixed Results from American Express

By Timothy Green – Oct 23, 2020 at 2:54PM

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The pandemic gutted a portion of Intel's lucrative data-center business, and American Express reported a steep revenue decline.

The Dow Jones Industrial Average (^DJI -0.69%) was down around 0.3% at 1:40 p.m. EDT Friday as uncertainty over potential stimulus legislation weighed on the stock market. Intel (INTC -2.24%) was the Dow's worst performer by far following an earnings report that featured a steep drop-off in demand from enterprise and government customers.

Shares of American Express (AXP -1.61%) were also having a bad day after the credit card company's mixed results failed to impress investors. While spending trends are improving, Amex's total revenue was still down around 20%.

Rows of servers in a data center.

Image source: Getty Images.

Intel hammered as pandemic hits data-center business

Chip giant Intel beat analyst expectations for revenue in the third quarter and raised its guidance, but all was not well under the surface. Demand for data-center chips from enterprise and government customers collapsed, and the PC business shifted hard toward lower-end products.

Data-center revenue was down 7% overall to $5.9 billion. Revenue from cloud customers rose 15%, but revenue from enterprise and government customers plunged 47%. Intel blamed a weak economy due to COVID-19 for the dramatic decline in demand. This mix shift toward cloud led to a 15% decline in average selling prices.

PC-related revenue was up 1%, but growth was driven by elevated demand for consumer and education PCs. Compared to the same period last year, average selling prices for laptop chips were down 7%, even as laptop-chip volume soared 25%.

Margins in both segments took big hits. In the data-center group, an operating margin of 32.2% was down from 48.8% in the prior-year period. In the client-computing group, the operating margin contracted to 36.1% from 44.3% in the third quarter of last year.

The weak economy due to the pandemic adds to Intel's competitive pressures. Advanced Micro Devices is going toe-to-toe with the company in the PC and server-chip markets, and NVIDIA recently agreed to acquire ARM Holdings in a deal that will almost certainly lead to more competition in the data-center business.

Shares of Intel were down about 10.9% by early Friday afternoon. The stock has dropped roughly 20% so far this year.

American Express reports mixed results

American Express stock didn't get as much of a shellacking as Intel on Friday, but shares of the credit card giant suffered a steep decline following a third-quarter report that was mixed relative to expectations. Total revenue was down 20% to $8.75 billion, ahead of the average analyst estimate by $40 million, while earnings per share (EPS) of $1.30 missed expectations by $0.05. EPS was down 38% year over year.

The company has seen a steady improvement in overall spending volumes since April, and it saw positive year-over-year growth during the quarter in spending unrelated to travel and entertainment. Delinquencies and net write-offs are at multi-year lows, but American Express continues to be cautious about the impact of the pandemic on the economy going forward.

With a winter wave of COVID-19 picking up steam in Europe and some parts of the United States, it may take quite a while for the travel and entertainment industries to fully bounce back from the pandemic. In response, American Express is investing in other areas. The company acquired small-business lender Kabbage in August, for example. But it's third-quarter results indicate how dependent it is on the type of spending that has been hit hardest by the pandemic.

Shares of American Express were down about 3.1% by early Friday afternoon. The stock has lost about 18% of its value since the start of the year.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NVIDIA. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.

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