Investors Arenít Too Impressed with Intelís Better-Than-Expected Second Quarter 2015 Earnings Report

Witawat (Ed) Wijaranakula, Ph.D.
Thu Jul 16, 2015

Intel [NASDAQ:INTC] plunged 1.99% on Thursday, to an intraday low of $29.10 a share and bounced back to close at $29.90 a share, or the 38.2% Fibonacci retracement level, after the company announced second quarter, ended June 2015, total revenues of $13.19 billion, down 5% from $13.8 billion the same quarter last year, and non-GAAP earnings of $0.55 per diluted share, compared with $0.55 per diluted share in the second quarter of 2014. Analystsí expectations were $0.51 per share on revenues of $13.05 billion. 

Client Computing Group revenue was $7.5 billion, down 14% year-over-year and Data Center Group (DCG) revenue was $3.9 billion, up 10% year-over-year. Internet of Things (IoT) Group revenue was $599 million, up 4% year-over-year, while the Software and Services operating segment revenue was $534 million, down 3% year-over-year.

Looking forward, Intel sees revenue of $14.3 billion, plus or minus $500 million, in the third-quarter ending in September 2015. For the full year 2015, revenue outlook is down approximately 1%. The company also cut its 2015 capex forecast to $7.7 billion, plus or minus $500 million. In the first quarter 2015 earnings report, Intel said it had cut its full-year capex forecast to $8.7 billion from $10 billion. 

The bottom line is that the Client Computing Group (CCG) continues to perform poorly, as the PC sales slump persists. Intel expects that the PC market is going to be weaker than previously expected as demand from corporate buyers and in the emerging markets stays weak. The company, however, expects that Intelís 6th generation Skylake core processors and Microsoft's Windows 10 will boost revenue for its Client Computing Group in the second half of 2015.

The Data Center Group (DCG) continues to perform but its growth rate on a year-over-year basis slowed down dramatically to 10% in the second quarter, from 19% growth in the first quarter. Intel said that enterprise buying has cooled and they do not expect a large recovery for enterprises through the remainder of this year.

The Internet of Things (IoT) Group revenue barely grew, just 4% in the quarter, compared to the impressive growth of 11% last quarter on a year-on-year basis. The Software and Services operating segment continues its downtrend. Intelís EPS got some tailwind from the abnormally low tax rate, as their tax rate in the second quarter was just 9.3%, compared to 25.5% in the same period last year. 

Last week, Intel announced that President Renee James will step down in January 2016 after 25 years with the firm. According to Citigroup, a departure of Ms. James is a good thing as the lack of growth and low profitability of Intelís software business was under her leadership.

From our technical viewpoint, INTC has been trading in a symmetrical triangle chart pattern, in the range between $34.71 and $29.10 a share, since October 2014. The 200-day SMA over the 50-day SMA death cross emerged in March and the stock has been pulled back sharply to the $29.10 support level, twice, as investors are skeptical about Intelís future growth strategies. 

A head and shoulders chart pattern has emerged, as investors are extremely bearish on Intelís PC and software business outlooks. The stock bounced off the $29.10 level and just closed at $29.90 a share, or the 38.2% Fibonacci retracement level, below the trendline resistances. If the $29.10 resistance canít hold, the stock could move downward towards $27.51 a share, or the 50% Fibonacci retracement level.

According to Yahoo Finance, the stock has a one-year price target of $33.43 a share. Intel will release its third quarter 2015 earnings report in October. Wall Street is expecting revenues of $14.08 billion, down 3.2% year-on-year, and an EPS of $0.56 per share, down 15.2% year-on-year.

Disclosure: No Position in INTC.

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