The Dow Jones Industrial Average (DJINDICES:^DJI) was down around 0.3% at 1:40 p.m. EDT Friday as uncertainty over potential stimulus legislation weighed on the stock market. Intel (NASDAQ:INTC) 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 (NYSE:AXP) 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%.
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.