Intel Corp Faces Increased Challenges
Intel Corporation (NASDAQ:INTC) stock is likely to take a hit after the company issued a weak guidance for the current quarter.
However, INTC stock has been quite resilient, posting 17% gains over the past year, as compared to the eight percent generated by the broader S&P 500.
On Tuesday, Intel stock reported a record quarterly revenue of $15.8 billion (a nine percent year-over-year increase) and an operating profit of $4.5 billion. The company reported adjusted third-quarter earnings of $0.80 a share, which was ahead of Wall street expectations. (Source: “Intel Reports Record Quarterly Revenue of $15.8 Billion, Up 9 Percent Year-Over-Year; Operating Profit of $4.5 Billion,” Intel Corporation, October 18, 2016.)
INTC stock has gained on account of a lower drop in personal computer (PC) business and healthy demand by cloud companies. However, a lower-than-expected revenue guidance for the current quarter shall weigh on Intel stock.
At present, PC chips are the biggest source of revenue for INTC stock. Amid the declining trend in PC demand across the globe, Intel has been focusing on its other businesses, such as data centers and Internet of Things (IoT). The chipmaker has posted record sales in its data center and Internet of Things units. The third-quarter revenue from cloud service providers rose 32% from last year. Sales in the company’s IoT group rose about 19% to $689.0 million.
In April of this year, Intel had announced that it would lay off 12,000 people, as the company was under pressure from the continuing downturn in global PC demand. As explained by Intel CEO Brian Krzanich, the layoffs were part of the company’s restructuring efforts. He wanted Intel—the PC company—to transform into a cloud and connected devices company. Intel redirected its efforts to supplying chips for smartphones, sensors and cloud computing. (Source: “Intel to Cut 12,000 Jobs as PC demand Plummets,” The New York Times, April 19, 2016.)
Intel stock had taken a hit on account of these restructuring costs. Krzanich has said that the results indicate the company’s continuing transformation into a company that powers the cloud and connected devices. The results show that the company is slowly moving in that direction, albeit it is proving to be a costly affair.
As the company works on its renewed efforts to focus on growing businesses like data centers, cloud computing and IoT, investors would like to see the effect on sales. If Intel can boost its sales, together with its restructuring efforts, INTC stock shall continue its upward journey again.
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