Amid Higher Costs & Expenses, Intel Posts Upbeat Q1 Results

Intel Corporation (NASDAQ: INTC) has posted better-than-expected results for the first quarter of 2022, with earnings and sales surprise coming in at 8.8% and 0.5%, respectively.

Shares of this $191.5-billion tech-giant increased 3.6% to close at $46.84 on Thursday. At the time of writing, the stock was down 3.5% in the pre-market trading session on Friday.

Financial Highlights

Intel’s earnings stood at $0.87 per share in the first quarter, higher than the consensus estimate of $0.80 per share and the company’s January projection of $0.80 per share. However, the bottom line decreased 35.1% year-over-year due to weak sales generation and higher costs and expenses.

Revenues at $18.4 billion came in above the consensus estimate of $18.31 billion and the company’s projection of $18.3 billion. On a year-over-year basis, the company’s non-GAAP revenues decreased 1.1%.

The Client Computing segment’s revenues in the quarter were $9.29 billion, down 13.3% from the year-ago quarter due to a 14.3% fall in desktop revenues and a 30.4% decline in notebook revenues.

Revenues from the Datacenter and AI segment increased 22.1% to $6.03 billion, while that from the Network and Edge expanded 23% to $2.21 billion. Accelerated Computing Systems and Graphics segment’s revenues grew 21% to $219 million, and the Mobileye segment’s revenues increased 4.5% to $394 million.

While revenues of Intel Foundry Services surged 174.8% to $283 million, All Other segment’s revenues declined 96.1% to $67 million.

Costs of sales were at $9.11 billion, up 3.3% year-over-year. Non-GAAP gross profit at $9.75 billion was down 10.8% from the year-ago quarter. Margin declined 570 basis points (bps) to 53.1%.

Non-GAAP R&D and MG&A increased 25.1% to $5.5 billion. Operating income (non-GAAP) decreased 35% to $4.24 billion, and the margin was down 1,200 bps to 23.1%.

Balance Sheet and Cash Flows

Exiting the first quarter, Intel’s cash and cash equivalents of $6.22 billion reflected an increase of 28.8% from the previous quarter. Debt at $32.79 billion was down 2.2% sequentially.

Net cash flow was $5.89 billion from operations activities, reflecting year-over-year growth of 10.2%. Capital expenditure was $4.6 billion, up 15.9% from the year-ago quarter. Adjusted free cash flow in the quarter was $5.55 billion.

Projections

For the second quarter of 2022, Intel anticipates non-GAAP revenue to be approximately $18 billion, and earnings to be $0.70 per share. The gross margin in the quarter is expected to be 51%.

In 2022, the company’s non-GAAP revenue is expected to be $76 billion and earnings are likely to be $3.60 per share. Also, the gross margin is expected to be 52%. Additionally, the company expects capital expenditure to be $27 billion and adjusted free cash outflow to be $1-2 billion.

Official Comment

Intel’s CEO Pat Gelsinger said, “With a $1 trillion market opportunity ahead of us, we remain laser focused on our IDM 2.0 strategy.”

“We executed well against that strategy in Q1, delivering key product and technology milestones and announcing plans to expand our manufacturing capacity in both the US and Europe to meet the continued demand for semiconductors and drive a more balanced, resilient global supply chain,” he added.

Capital Deployment

During the first quarter, Intel distributed dividends of $1.49 billion and refrained from repurchasing any shares. However, the company paid dividends of $1.41 billion and bought back shares worth $2.3 billion in the year-ago quarter.

Stock Rating

On April 28, Rosenblatt Securities analyst Hans Mosesmann reiterated a Sell rating on Intel with a price target of $40 (14.6% downside potential).

Four days ago, Randy Abrams of Credit Suisse assumed coverage on the stock with a Buy rating and a price target of $70 (49.44% upside potential.

Overall, Intel has a Hold consensus rating based on six Buys, 12 Holds, and seven Sells. Intel’s price forecast of $52.24 suggests 11.53% upside potential from current levels.

Shares of Intel have declined 19.6% over the past year.

Hedge Fund Holdings

According to the TipRanks Hedge Fund tool, confidence in Intel is currently Very Negative, as the cumulative change in holdings across all 33 hedge funds that were active in the last quarter was a decrease of 9.8 million shares.

Conclusion

Intel is well-positioned to benefit from a huge addressable market. It is focused on enhancing technological and manufacturing capabilities as well as building a stable supply chain.

However, higher costs and expenses, weak margins, and a highly leveraged balance sheet are some issues that have to be prudently dealt with.

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