What's Behind Intel's Best Quarter Ever?
The chipmaker's results show that corporate PC upgrades are starting to happen in earnest now, says Morningstar analyst Andy Ng.
The chipmaker's results show that corporate PC upgrades are starting to happen in earnest now, says Morningstar analyst Andy Ng.
Jeremy Glaser: I am Jeremy Glaser with Morningstar.com. Intel kicked off the tech earnings season with yet another great quarter. I am here with analyst Andy Ng to take a deeper look.
Andy, thanks for joining me.
Andy Ng: Sure.
Glaser: So, people usually think of the second quarter for Intel as being seasonally weak, but was that the case this year?
Ng: No. They actually – sequentially, their revenues were actually up to $10.8 billion, and this is actually their best quarter ever.
Glaser: So, it's not just like their best second quarter; it's actually the best one they've ever had. What were some of the drivers that were really powering the company?
Ng: Things were strong across the board. PC, servers, everything was really robust. They did note that they saw stronger PC spending from corporations. And so, they did see more corporate PCs, and also server shipments were strong.
Glaser: That's the one thing people have been worried was that corporations weren't willing to spend on new technology and weren't investing. So, does it look like that replacement cycle has really begun in earnest?
Ng: Yes. For the last several years, corporations have been putting off upgrading their PCs, but it looks like it's starting to happen now. And we think that this is something that's positive for the technology space for the upcoming quarters.
Glaser: Turning to outlook, what was management's take on the state of the business in the coming quarters?
Ng: Intel expects revenue to be $10.6 billion next quarter. Actually in the second quarter their gross margin is at 67%, which is really good, and they expect it to stay strong in the third quarter.
Glaser: So it seems like we've gotten a drumbeat of good news. Revenues keep going up and margins are looking really great. But over the course of this year, the stock has been essentially flat. So what are the clouds that might be hanging over Intel and what are investors worried about in their future trajectory.
Ng: Well, Intel's stock has come down in recent months because there's been some fears about a slowdown in Europe and how that will affect global technology demand, PC demand. There are also some other fears that because demand has been so strong in the electronics supply chain that these companies might be building up too much inventory, and if demand were to slow because of, say, a slowdown in Europe, then the technology supply chain will be left with a lot of inventory overhang.
Glaser: But so far it doesn't seem like any of these concerns have actually materialized in the earnings?
Ng: No. Another thing to keep in mind is that in the emerging markets, like in China and India, things are actually pretty strong, and that helps drive the recovery that's being seen in the chip industry.
Glaser: Okay, Andy. Thanks so much for sharing your insights.
Ng: Sure.
Glaser: For Morningstar.com, I am Jeremy Glaser.
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