As we hinted on the day of Microchip’s (MCHP) warning, we thought Intel (INTC) may be a standout in the chip space, and the company didn’t disappoint. The company’s third-quarter results beat estimates on both the top and bottom lines, and management issued solid guidance. Intel is included in both the Best Ideas portfolio and Dividend Growth portfolio.
The headlines were impressive. Intel’s third-quarter revenue of $14.6 billion advanced 8% on a year-over-year basis thanks in part to record quarterly unit shipments of PCs, servers, tablets, phones and Internet of Things. It was its best-ever third-quarter revenue performance. The firm also noted that the quarter marked the first time that it shipped more than 100 million microprocessors in a quarter. Equally impressive, Intel’s operating income during the period advanced 30% on a year-over-year basis, to $4.5 billion. The firm’s $5.7 billion in cash flow from operations was also solid, and management continues to return cash to shareholders via dividends and buybacks.
Intel’s fourth-quarter revenue guidance also came in better than expected at $14.7 billion +/- $500 million (up 1% sequentially). Gross margin during the fourth quarter is anticipated at 64%, plus or minus a couple percentage points. The company’s third-quarter gross margin was 65%. According to CEO Stacy Smith’s commentary, “the one point decrease (in gross margin) from the third quarter is driven by higher platform unit costs, higher factory start-up costs, partially offset by lower production costs on 14nm.” Still, profit expansion was mighty impressive, and management added that the “worldwide PC supply chain appears to be healthy, with inventory levels appropriate in anticipation of the fourth quarter retail cycles.”
We continue to like Intel as a position in both newsletter portfolios.