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.
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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
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 ChipsThe 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 GrowthIntel'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.
Product Demand & Outstanding InventoryDays 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.
The author has no position in any of the stocks mentioned in this report.