Intel (NYSE: INTC) is trading higher in US premarkets today after the company reported better-than-expected earnings for the third quarter of 2022. The earnings beat is a welcome break for the chip industry which is still grappling with massive oversupply.
Intel reported non-GAAP revenues of $15.34 billion in the quarter which was 15% lower YoY. The revenue decline was better than the 22% fall in the previous quarter and the metric was ahead of the $15.25 billion that analysts were expecting.
Notably, chipmakers across the board are witnessing a severe slowdown as both smartphone and PC sales have plummeted this year. Earlier this month, AMD also lowered its third-quarter guidance citing the demand slowdown.
While global smartphone shipments fell in double digits in the September quarter, Apple managed to buck the downtrend and iPhone revenues rose 9.67% to $42.63 billion in the quarter. While it was a new September quarter record for the company, the revenues fell slightly short of estimates.
Apple stock is nonetheless trading marginally higher today. It is the best-performing FAANG stock of 2022 and even Warren Buffett has invested more money into the iPhone maker this year. We have a guide on how beginners can buy Apple stock.
Intel Posted Better Than Expected Earnings in the Third Quarter
Intel reported an adjusted EPS of 59 cents which were way ahead of the 32 cents that analysts were expecting. However, the company did lower its annual revenue guidance to $63-$64 billion which it said reflected “continued economic headwinds.”
Intel CEO Pat Gelsinger said during the earnings call, “Despite the worsening economic conditions, we delivered solid results and made significant progress with our product and process execution during the quarter.”
He added, “To position ourselves for this business cycle, we are aggressively addressing costs and driving efficiencies across the business to accelerate our IDM 2.0 flywheel for the digital future.”
The company is targeting upto $10 billion in annualized cost reductions by 2025. It expects to realize $3 billion in cost reductions next year only. A large part of these savings would come from headcount reduction.
Intel did not specify how many of its over 120,000 employees would be laid off. However, earlier this month, Bloomberg reported that the company might lay off thousands of employees. The last mass layoffs at Intel were in 2016 when the company laid off 12,000 employees.
Mobileye IPO was Priced at Lower Valuation
Intel also recently completed the IPO of Mobileye, its self-driving unit. The company priced the IPO at $21 per share. While the overall IPO market has been tepid. Mobileye stock soared after the listing.
During the earnings call, Gelsinger said, “We believe that this will help unlock Mobileye’s full operational and financial potential and is an additional avenue to create value for our owners.”
The US IPO market has been almost dead this year as investors have been cold to new listings due to the mayhem in growth stocks. However, there is still investor interest in some of the upcoming IPOs like Instacart. We have a list of some of the upcoming IPOs.
Intel is Witnessing Slowing Demand
The chip industry is witnessing a severe oversupply. The tech war between US and China, where the former has imposed restrictions on chip sales to the latter is not helping matters.
Higher inflation is also a worry for chip companies like Intel as it would put further pressure on gadget sales and the US Fed is expected to raise rates by 75 basis points again next month to tame inflation. Growth stocks have especially seen a massive sell-off amid higher inflation. While inflation, in general, is negative for stocks, some investing strategies can do well in inflation.
Meanwhile, after the steep fall, Intel now offers a healthy dividend yield of 5.6% which is quite attractive. Intel is also among the major beneficiaries of the CHIPS Plus Act in the US.
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