The third quarter earnings cycle has just begun, but we've already seen some companies post numbers that investors didn't like. Netflix yesterday it lost several parameters and was punished, and today Intel joins the video streaming giant in the purgatory of the stock market.
Intel shares fell about 10% in overtime trading after the chip company reported its third quarter data. Investors had expected Intel to report adjusted earnings per share of $ 1.11, down about 22% from the same period a year ago. They also expected revenue of $ 18.26 billion in the third quarter, down a more modest 5% from the third quarter a year ago.
Notably, Intel exceeded revenue expectations with a maximum line of $ 18.3 billion and met earnings per share estimates of $ 1.11, on an adjusted basis.
So why are Intel shares so much lower?
A quick consensus seems to point to the weakness of the data-centric business unit, the smaller of Intel's two halves (the other focuses on PC chips). On the data side of Intel, its Data Center Group (DCG) has achieved mixed results, including cloud revenue growth of 15%. However, at the same time, DCG's "Enterprise & Government" business was down 47% from a year ago, following what Intel described as "two quarters of over 30% growth."
Beyond that weakness, the resulting loss of earnings was stark, with the market expecting $ 6.22 billion in revenue and DCG producing just $ 5.9 billion.
Intel blamed COVID-19 for the weak economic conditions at play in the result. The company also highlighted COVID-19 when it discussed the results of its Internet of Things business and memory functioning, which fell by 33% and 11% year-on-year, respectively.
Perhaps due to the recent resurgence of COVID-19 in both North America and Europe, investors are concerned that macroeconomic issues that harm Intel's growth may continue. If so, growth could be negative for a longer period than expected. This prospect could have led to a sale of Intel stock after the earnings report.
Could driving have a role to play in Intel's share price drop? Probably not. Better than reported for Q3 2020, Intel's future guidance shows a slight increase in revenue over expectations and even a small increase in profits. Intel expects revenue of $ 17.4 billion for the fourth quarter of 2020 and an adjusted earnings per share of $ 1.10, while the road was looking for $ 17.34 billion in the top line and adjusted earnings per share of $ 1. 06 dollars.
As Intel is poised to meet better expectations in the fourth quarter, it's hard to pin its share price drop on a guidebook. This leaves weakness in its data business as the most obvious culprit.
It is dangerous to over-describe why an action or group of actions is moving at a given moment. But in this case, it seems clear that Intel's lack of revenue in the data business was at least part of the reason it lost value. As for the validity of the company's COVID-19 notes it depends on you and how you stand in the wider economy.
