Asia in focus as Intel and Netflix report Q3 earnings results
For the third quarter earnings season, information technology is expected to be one of the leading sectors, anticipated to post EPS growth of 7.0% year-over-year (YoY), but much lower revenues of 1.0%.
Tech names such as Intel (INTC), Linear Technology (LLTC), Advanced Micro Devices (AMD) and Travelzoo (TZOO) all report results this week. Tech companies have started the season out strong. From the S&P 500 IT sector, 6 companies have reported thus far, Accenture (ACN), Paychex (PAYX), Adobe (ADBE), and Red Hat (RHT) have all beat, Micron (MU) missed and Oracle (ORCL) met estimates.
Intel is first up this week, reporting results on Tuesday after the bell. After a poor showing in Q1, the semiconductor was able to beat EPS estimates in Q2, still missing revenues. This quarter Estimize is looking for EPS of $0.60, a penny higher than Wall Street, denoting a YoY decline of 9%. Revenues are anticipated to fall as well, but only 2%. Much of the weakness seen in semiconductors this year stems from a slowdown in desktop computer sales, Intel’s primary source of revenue.
Unfortunately for investors PC sales have continued to decline in the third quarter as well, down 10.8% YoY according to research firm IDC. While the company’s data center business has done well, poor PC sales are likely to offset any progress there. Intel looks to invest further in its data center segment, acquiring semiconductor maker Altera (ALTR) for $17 billion this summer in order to bolster revenue growth.
One area to watch going into Tuesday’s report is how Intel plans on capitalizing on the increasingly-dominant mobile device market, especially in Asia. In October, Intel took a 20% stake in Chinese tech giant Tsinghua Unigroup and the companies announced plans to cooperate on furthering mobile technologies in China. Tsinghua was again in the news this week for its recent $23 billion takeover bid for Micron Technology.
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Netflix (NFLX) will be another one to watch this week, as it remains a cult favorite of investors. While it is technically in the consumer discretionary sector, this internet retailer is just as tech heavy as it is media and content related. Estimize is looking for EPS of $0.09 this quarter vs. the Street’s $0.08, with revenues almost in-line at $1.75 billion. This suggests a profit decrease of 36% YoY, and a revenue increase of 24%.
Costs related to Netflix’s international expansion are weighing on the bottom-line, but clearly benefiting the top-line. The company launched in Japan last month and has its eyes on Hong Kong, Singapore, South Korea and Taiwan next year. Launches in Italy, Spain and Portugal are set for this month. Along with the costs of expansion, currency headwinds related to moving into these new markets also remain an issue.
It’s important to note however, that the headline figure for this company is rarely ever earnings or revenues, but subscriber numbers. The amount of Netflix subscribers each month is usually seen as the barometer of ROI for their original content which has been very popular. Subscriber numbers hit a record of 3.28 million last quarter vs. expectations of 2.46 million, the stock went nuts as a result, shooting up 17% despite a revenue miss.
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