Intel (NASDAQ:INTC) Q2 Sales Beat Estimates, Stock Soars

Max Juang /
2023/07/27 4:17 pm EDT

Computer processor maker Intel (NASDAQ:INTC) reported results ahead of analysts' expectations in Q2 FY2023, with revenue down 15.5% year on year to $12.9 billion. The company also expects next quarter's revenue to be around $13.4 billion, slightly ahead of analysts' estimates. Intel made a GAAP profit of $1.48 billion, improving from its loss of $454 million in the same quarter last year.

Is now the time to buy Intel? Find out by accessing our full research report free of charge.

Intel (INTC) Q2 FY2023 Highlights:

  • Revenue: $12.9 billion vs analyst estimates of $12.1 billion (6.69% beat)
  • EPS (non-GAAP): $0.13 vs analyst estimates of -$0.03 ($0.16 beat)
  • Revenue guidance for Q3 2023 is $13.4 billion at the midpoint, above analyst estimates of $13.3 billion
  • Free cash flow was -$2.73 billion compared to -$8.76 billion in the previous quarter
  • Inventory Days Outstanding: 131, down from 153 in the previous quarter
  • Gross Margin (GAAP): 35.8%, down from 36.5% in the same quarter last year

“Our Q2 results exceeded the high end of our guidance as we continue to execute on our strategic priorities, including building momentum with our foundry business and delivering on our product and process roadmaps," said Pat Gelsinger, Intel CEO. "We are also well-positioned to capitalize on the significant growth across the AI continuum by championing an open ecosystem and silicon solutions that optimize performance, cost and security to democratize AI from cloud to enterprise, edge and client.”

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.

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% on average per year. This quarter, its revenue declined from $15.3 billion in the same quarter last year to $12.9 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).

Intel Total Revenue

Even though Intel surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 15.5% year on year. This could mean that the current downcycle is deepening.

Intel may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 12.6% next quarter, analysts are expecting revenue to grow 3.17% over the next 12 months.

In volatile times like these, we look for robust businesses with strong pricing power. Overlooked by most investors, this company is one of the highest-quality software companies in the world, and its software products have been the gold standard in critical industries for decades. The result is an impressive business that's up an incredible 18,000%+ since its IPO. 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.

Intel Inventory Days Outstanding

This quarter, Intel's DIO came in at 131, which is 23 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 Q2 Results

Although Intel, which has a market capitalization of $143 billion, has been burning cash over the last 12 months, its more than $24.3 billion in cash on hand gives it the flexibility to continue prioritizing growth over profitability.

In May 2023 at a conference, Intel management remarked that the company's Q2'23 revenue would come in at the high end of guidance. Instead, it exceeded the high end, which is a big positive for a company where there are questions about revenue stability. Additionally, next quarter's revenue and EPS guidance both slightly exceeded Consensus expectations. Lastly, we liked seeing Intel's improvement in inventory levels. On the other hand, its deteriorating operating margin isn't a great sign. Overall, this quarter's results were positive amid low expectations and shareholders should feel optimistic. The stock is up 6.1% after reporting and currently trades at $36.68 per share.

So should you invest in Intel right now? When making that decision, it's important to consider its valuation, business qualities, and what's happened in the latest quarter. We cover this and more in our full company report, and it's free.

Looking for more investment opportunities? One way to find them is to watch for paradigm shifts, just like how every company in the world is slowly becoming a technology company and facing increasing cybersecurity risks. This company is leading the charge in cyber defense with its cloud-native cybersecurity solutions while generating best-in-class revenue growth and SaaS performance metrics. It should definitely be on your radar.

The author has no position in any of the stocks mentioned in this report.