Intel Corp INTC

Intel reported second-quarter results that exceeded its guidance, primarily due to stronger than expected laptop demand. The firm has been experiencing a renaissance in the PC market, as COVID-19 has increased PC density (PCs per household) as more people work and learn from home. CEO Pat Gelsinger expects the PC addressable market to maintain growth beyond 2022, citing an estimated 400 million PCs over 4 years old that could be due for refresh. More importantly, Intel’s data center group, or DCG, continues to face major headwinds. Management cited competition, increased costs associated with the 10-nanometer ramp, and increased R&D spending as key drivers of the DCG operating income decline (down 37% year over year). We suspect the biggest challenge remains renewed competition from AMD that is likely pressuring Intel’s DCG prices. While we remain optimistic on Intel’s IDM 2.0 strategy to get its manufacturing back on track and develop a more substantial foundry offering, we expect the next few quarters to be challenging.