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Intel stock surges on strong Q3 results despite continued supply shortages

Intel Corp.'s stock climbed in after-market trading Oct. 24 after the company posted better-than-expected earnings for the third quarter, despite continued CPU supply shortages.

CEO Bob Swan said the company still needs to improve its execution on multiple fronts, especially concerning its supply.

"We expect our second-half PC client supply will be up double digits compared to the first half, and we expect to further increase our PC client supply by mid-to-high single-digits in 2020, but that growth hasn't been sufficient," Swan said. "We're letting our customers down."

Intel CFO George Davis said demand for PC chips exceeded the company's expectations and surpassed second-quarter forecasts, making it difficult to create "inventory buffers."

"We are working hard to regain supply/demand balance, but we expect to continue to be challenged in the fourth quarter," Davis said.

Regarding the market for next-generation 5G wireless technology, Swan said Intel is well positioned for deployments in 2020 and expects to grow its market segment share in wireless base stations to 40% by 2022. The CEO said Intel has increased its investment in the wireless technology despite the sale of its 5G smartphone modem business to Apple Inc. and the sale of its 49% stake in mobile chipmaker IM Flash Technologies LLC to Micron Technology Inc. Both deals are expected to close in the fourth quarter.

Swan also said Intel is expanding its investment in artificial intelligence, with 75% of the company's enterprise applications expected to use AI by 2021.

"We expect to generate more than $3.5 billion in AI-driven, data-centric revenue in 2019, up more than 20% year over year," the executive said.

Intel reported third-quarter net income of $5.99 billion, or $1.35 per share, down 6% from $6.40 billion, or $1.38 per share, in the third quarter of 2018. Non-GAAP net income for the quarter was $6.29 billion, or $1.42 per share, down 3% from $6.51 billion, or $1.40 per share. The S&P Global Market Intelligence consensus EPS estimate for the third quarter was $1.16 on a GAAP basis and $1.24 on a normalized basis.

Net revenue in the quarter totaled $19.19 billion, compared to $19.16 billion a year earlier. The company's largest segment, client computing, reported revenue of $9.71 billion. The data center group reported $6.38 billion in revenue, while the internet of things segment reported $1.23 billion.

Looking ahead, Intel raised its full-year revenue outlook to $71 billion, up $1.5 billion from its July guidance. The company now expects full-year GAAP EPS of $4.42 and full-year non-GAAP EPS of $4.60. For the fourth quarter, the company expects revenue of $19.2 billion, GAAP EPS of $1.28 and non-GAAP EPS of $1.24.