Computer processor maker Intel (NASDAQ:INTC) reported Q3 FY2023 results topping analysts' expectations, with revenue down 7.69% year on year to $14.2 billion. On top of that, next quarter's revenue guidance ($15.1 billion at the midpoint) was surprisingly good and 5.26% above what analysts were expecting. Turning to EPS, Intel made a non-GAAP profit of $0.41 per share, down from its profit of $0.59 per share in the same quarter last year.
Is now the time to buy Intel? Find out by accessing our full research report, it's free.
Intel (INTC) Q3 FY2023 Highlights:
- Revenue: $14.2 billion vs analyst estimates of $13.6 billion (4.12% beat)
- EPS (non-GAAP): $0.41 vs analyst estimates of $0.22 ($0.19 beat)
- Revenue Guidance for Q4 2023 is $15.1 billion at the midpoint, above analyst estimates of $14.3 billion
- Free Cash Flow of $943 million is up from -$2.73 billion in the previous quarter
- Inventory Days Outstanding: 128, down from 131 in the previous quarter
- Gross Margin (GAAP): 42.5%, in line with the same quarter last year
“We delivered a standout third quarter, underscored by across-the-board progress on our process and product roadmaps, agreements with new foundry customers, and momentum as we bring AI everywhere,” said Pat Gelsinger, Intel CEO. “We continue to make meaningful progress on our IDM 2.0 transformation by relentlessly advancing our strategy, rebuilding our execution engine and delivering on our commitments to our customers.”
Inventor of the x86 processor that powered decades of technological innovation in PCs, data centers, and numerous other markets, Intel (NASDAQ: INTC) is the leading manufacturer of computer processors and graphics chips.
Processors and Graphics Chips
The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.
Sales Growth
Intel's revenue has been declining over the last three years, dropping by 11.2% on average per year. This quarter, its revenue declined from $15.3 billion in the same quarter last year to $14.2 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
Even though Intel surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 7.69% year on year. This could mean that the current downcycle is deepening.
Intel looks like it's on the cusp of a rebound, as it's guiding to 7.53% year-on-year revenue growth for the next quarter. Analysts seem to agree as consesus estimates call for 9.41% growth over the next 12 months.
While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Intel's DIO came in at 128, which is 18 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.
Key Takeaways from Intel's Q3 Results
Although Intel, which has a market capitalization of $137 billion, has been burning cash over the last 12 months, its more than $25 billion in cash on hand gives it the flexibility to continue prioritizing growth over profitability.
We were impressed by how significantly Intel blew past analysts' revenue and EPS expectations this quarter. The Client Computing Group (CCG), which is the largest segment, outperformed revenue estimates by a wide margin. We were also glad its operating margin improved. Lastly, the company's Q4 outlook was comfortably ahead. Zooming out, we think this was a great quarter that shareholders will appreciate, especially in light of some lackluster quarterly performance in the last year or two. The stock is up 7.15% after reporting and currently trades at $34.79 per share.
Intel may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.
Join Paid Stock Investor Research
Help us make StockStory more helpful to investors like yourself. Join our paid user research session and receive a $50 Amazon gift card for your opinions. Sign up here.
The author has no position in any of the stocks mentioned in this report.