Investors fret despite Intel’s solid Q3 earnings

by Lei Xuan

Intel's earnings have strengthened in recent quarters. Chart by Lei Xuan
Intel’s earnings have strengthened in recent quarters. Chart by Lei Xuan

Intel Corp.’s third-quarter earnings slightly topped forecasts Wednesday, but investors are worried the chip maker is losing its momentum.

For the quarter ended Sept 27,  the Santa Clara, California-based company’s net earnings increased 12.5 percent to $3.32 billion, or 66 cents per diluted share, from $2.95 billion, or 58 cents in last year’s quarter. The per-share earnings topped analyst forecasts by a penny.

Revenue rose 7.9 percent to $14.55 billion from $13.48 billion the same quarter last year.

Intel is a dominant supplier of microprocessor chips to PCs and server systems. However, as the PC market shrank in recent years, Intel has responded by launching an aggressive pursuit of the tablet market last year.

That strategic change is bearing fruit, officials said. “We are pleased by the progress the company is making,” said Intel CEO Brian Krzanich. “There is more to do, but our results give us confidence that we’re successfully executing to our strategy of extending our products across a board range of exciting new markets.”

“A good quarter,” wrote Joseph Moore, analyst at Morgan Stanly in his research note, “but the disparity between Intel’s unit shipments vs. demand is unsustainable at best, or signaling inventory build at worst.” Moore downgraded Intel to “underweight” from “equal weight.”

Recently, Intel has enjoyed strengthening sales of chips that go into PCs. In the latest quarter the company more than 100 million such microprocessors for the first time in its history, and operating profit at its PC-chip group surged by 27 percent to $4.12 billion.  The company’s still-developing mobile and communications group rang up an operating loss of $1.04 billion.

“The corporate PC refresh cycle has continued to provide tailwind for Intel,” said Morningstar analyst Andy Ng, who thought the firm’s shares are overvalued, in his research note issued after Intel released its earnings Tuesday evening, “but we believe that it will last only a few quarters, after which the PC market will likely face pressures in the long run.”

On a day when the broad stock market was under pressure, Intel shares fell 86 cents, or 2.69 percent, to close on the New York Stock Exchange at $31.27.