INTC: Look Ahead to December 2020 Quarterly Results

This "look-ahead" post discusses how I came up with an estimate for Intel's earnings for fiscal 2020's fourth quarter, which ended on December 31, 2020, by predicting each element of its Income Statement, from top-line Revenue to bottom-line Earnings Per Share (EPS) and everything in between. 

Once the company’s official results become available on January 21, I will compare the published Income Statement to the prediction and identify any surprises, positive or negative.  Examining these differences can identify what factors (e.g., profit margins, non-GAAP expenses, tax rates, share buybacks) are driving changes to a company's financial performance.

But, before we get into the details, let's take a step back and start with background information about Intel.

Intel makes integrated circuits (i.e., "chips") used in computers, servers, and many other devices. Once the undisputed leader of the semiconductor industry, the emergence of mobile computing benefited competing firms that did a better job producing chips that consume less electrical power, a key consideration.  Intel has also lost market share because of delays it has experienced when manufacturing new generations of chips.  These and other factors forced Intel to consider other opportunities.  Intel acquired Altera Corp, a maker of programmable logic devices, in 2015, and Mobileye, which developed technology for autonomous driving, in 2017.  The Intel Security Group (ISecG) was a focus but it was divested in April 2017. Intel then divested most of its  smartphone modem business in December 2019.  More recently, Intel agreed to sell its NAND memory and storage business to SK hynix for $9 billion.

With a market value of about $200 billion on a fully diluted basis, Intel is part of the Dow Jones Industrial Average, Standard and Poors 500, Standard and Poors 100, NASDAQ 100, and Russell 1000 stock indices.

Intel earned roughly $22 billion on revenue of $78 billion during the four-quarter period that ended on 26 September 2020.  Revenue in the most recent quarter totaled $18.3 billion, 4% less than last year's $19.2 billion. The Client Computing Group business was responsible for 54% of overall revenue, and this unit's revenue grew by 1.4% compared to the year-earlier result. The Data Center Group business contributed 32% of revenue, and this unit's revenue fell by 7.5%. The Non-Volatile Memory Solutions Group unit supplied 6% of revenue, and the amount fell by 10.6%.

My starting point, if available, when estimating earnings is guidance provided by the company's management to financial analysts.  It's true that the company may downplay expectations somewhat to avoid disappointments, but the top managers ought to know better than anyone else how well their products and services are selling.  I also look for other information about the company in the news, and I take advantage of trends in the company's historical results.  While it makes my task a little more difficult, I also try to estimate earnings that conform to Generally Accepted Accounting Principles (GAAP).  Non-GAAP results, which most professionals focus on, are somewhat arbitrary and often exclude meaningful items.

Intel's management communicated their expectations, or "guidance" as it's known, for the December 2020 quarter last October (https://tinyurl.com/y3hw3vb7). 

I start with these guidance figures, but some additional assumptions are needed to prepare a complete Income Statement.  The following is the result, and I will use it to determine how Intel's fourth quarter differed from what was predicted.

Please note that my organization of revenues, expenses, gains, and losses, which I use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

#intel #intc #gcfr #gcfr2 #lookahead #nac_financialanalysis