Intel Corporation reported after the market closed on January 21, 2021 it earned $1.42 per diluted share in the quarter that ended on December 26, 2020, down 10 percent from earnings of $1.58 in the equivalent 13 weeks of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
Non-GAAP earnings were unchanged from one year earlier at $1.52 per share. Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits. However, caution is warranted when analyzing these figures because management has considerable leeway in choosing which GAAP-required items to exclude.
This post compares the quarterly Income Statement published by Intel to the predictions I made in the “Look Ahead” post I shared earlier.
First a little background about the company: Intel makes semiconductor chips used in computers, servers, and many other devices. Once the clear leader of its industry, the rapid growth of mobile phones benefited competing firms that did a better job producing chips that required less electrical power, a key consideration. Intel has also lost market share because of delays manufacturing new generations of chips. Apple started using its own proprietary chips in its devices, replacing those from Intel. When the price of Intel's shares dropped in 2020, Third Point, a hedge fund, got involved and advocated for changes. They got their way, at least in part, when Intel announced in January 2021 that its Chief Executive Officer would be replaced by Pat Gelsinger, who was CEO of VMWare and had previously worked at Intel. Even before this CEO change, Intel had taken some significant strategic actions; e.g., divesting most of its smartphone modem business and making a deal to sell its NAND memory and storage business to SK hynix for $9 billion.
Revenue in the December 2020 quarter totaled $20.0 billion, 1 percent less than last year's $20.2 billion. Intel's guidance for the quarter, issued last October, was that revenue would be about $17.4 billion. I used this latter figure in my prediction. Sales were obviously much better than anticipated.
The Client Computing Group business was responsible for 55 percent of overall revenue, and this unit's revenue grew by 9.3 percent compared to the year-earlier result. The Data Center Group business contributed 30 percent of revenue, and this unit's revenue decreased by 15.6 percent. The Non-Volatile Memory Solutions Group unit supplied 6 percent of revenue, and this business's revenue fell by 0.7 percent.
The Gross Margin weakened from 58.8 percent of revenue to 56.8 percent, a sign that Intel sold its output and services at less profitable prices relative to production costs. Although weaker, profitability was better than I had anticipated, as I thought the Gross Margin would be 54 percent of revenue.
Research and Development expenses rose to $3.7 billion from $3.4 billion. I was expecting $3.3 billion.
Sales, General, and Administrative expenses increased from $1.54 to $1.76 billion, or from 7.6 percent to 8.8 percent of quarterly revenue. I expected SG&A to be slightly higher, 9.0 percent of revenue. The company spent more per dollar of sales on other operational costs, such as marketing.
The last operating expense line on the Income Statement is for restructuring and other"special operating items. This line was only $52 million in the last quarter, quite a bit less than the $260 million I had been expecting because of all the changes underway at Intel.
Operating Income was $5.9 billion in the quarter, down 13 percent from the year-earlier period, but much better than I had predicted.
As for non-operating items, Intel benefitted handsomely from the stock market's surge as it recorded a large $1.7 billion gain on equity investments. Interest income was lower.
The effective income tax rate was surprisingly high at 21.8 percent.
Net income of $5.9 billion was 15 percent lower than in the December 2019 quarter. Earnings per share of $1.42 were only down 10 percent, as buybacks reduced the number of shares outstanding. The guidance for the quarter was for an EPS of $1.02 per share. Nevertheless, because of much higher revenue, better profitability and the large gain on equity investments, Intel's earnings were dramatically better than forecast.
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 #gauges #gcfr #gcfr2 #lookahead #nac_financialanalysis
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