Skip to Content
Stock Analyst Update

Intel's Q3 Highlights Competitive Pressures

This wide-moat company's long-term future is still promising as we view shares as undervalued.

Mentioned:

Intel (INTC) reported third-quarter results that could be characterized as a mixed bag, including continued strength in cloud spending and notebook PC demand, while enterprise and government data center sales fell significantly and margins contracted. Management had anticipated these trends, though the ultimate mix skewed more to margin-dilutive products such as 5G networking ASICs and notebook PC CPUs than we had expected. While COVID-19 has accelerated the digital transformation to boost cloud and notebook PC demand to support working and learning from home, other areas of Intel’s broad business have been negatively impacted (such as Internet of Things, Mobileye, and memory). Cloud spending is expected to slowdown after four consecutive quarters of double-digit year-over-year growth for Intel’s cloud-related data center group, or DCG, revenue.

Shares were down nearly 10% during after-hours trading and are back to similar levels to the end of July when Intel announced its 7-nanometer process would be delayed at least six months. CEO Bob Swan reiterated Intel’s 2023 products would be made on either Intel 7-nm fabs or external foundries or a mix of both. We like Intel’s recent deal to sell its NAND business to SK Hynix for $9 billion, as it will allow the company to streamline its focus on its core competencies of CPU design and manufacturing while providing a solid cash infusion. Although the next few quarters are likely to be challenging for the firm as AMD continues to attack Intel’s PC and server CPU dominance, we believe Intel’s 10-nm Tiger Lake notebook CPUs and Ice Lake server CPUs should help it mitigate share loss. We are maintaining our $70 fair value estimate for wide-moat Intel and continue to view shares as undervalued.

Third-quarter sales were down 4% year over year, as PC-centric sales rose 1% and data-centric sales fell 10%. Management expects fourth-quarter sales of $17.4 billion, which would be down 14% year over year.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Abhinav Davuluri does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.