Intel (INTC) to Report Q4 Earnings: CCG & DCG in Spotlight

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Intel INTC is scheduled to report fourth-quarter 2020 results on Jan 21.

The chipmaker’s fourth-quarter performance is expected to have benefited from strength in its client computing business, courtesy of growing PC demand amid the coronavirus crisis-induced work-from-home wave.

Solid momentum of its latest high-performance Xeon processors may have contributed to the to-be-reported quarter’s performance.

Markedly, encouraging trend in PC shipments in the fourth quarter, driven by increased demand and improvement in the supply chain, may have favored fourth-quarter performance.

However, stiff competition from Advanced Micro Devices AMD, primarily post Xilinx XLNX acquisition, is likely to have put pricing pressure and limited margin expansion. Markedly, AMD has been gaining from robust uptake of its second generation EPYC server processors.

In a bid to maintain its competitive position and improve ASPs, Intel is increasing investments on accelerated ramp up of 10 nanometer (nm) products and improvement in 7 nm production is anticipated to have weighed on fourth-quarter profitability.

Also, incremental adoption of latest Core vPro and Lakefield processors, along with Tiger Lake series offerings, is likely to have contributed to fourth-quarter revenues.

Intel Corporation Revenue (Quarterly)

Intel Corporation Revenue (Quarterly)
Intel Corporation Revenue (Quarterly)

Intel Corporation revenue-quarterly | Intel Corporation Quote

Click here to know how the company’s overall fourth-quarter performance is expected to be.

Work-From-Home Push to Boost Client Computing Segment

Intel’s PC-centric business is represented by this segment. Notably, Intel bundles PCs, notebooks, 2-in-1s, tablets and other computing devices under the Client Computing Group or CCG segment.

Incremental adoption of the latest processors and deal wins from Alphabet’s GOOGL Google, Microsoft, among others, are anticipated to have contributed to the fourth-quarter performance.

Moreover, new design wins for its 10 nm mobile CPU — Ice Lake — is likely to have been a tailwind for Intel.

Furthermore, encouraging trend in PC shipments in the fourth quarter is likely to have benefited CCG segment revenues. Per Gartner’s preliminary data, PC shipments in fourth-quarter 2020 improved 10.7% year over year to 79.4 million units.

However, stiff competition in commercial PC business is likely to have a negative impact on the segment’s revenues. Markedly, 10th-generation Intel Core H-Series adoption face stiff competition from AMD’s Ryzen 7 powered devices in the market.

Markedly, the Zacks Consensus Estimate for CCG is currently pegged at $9.641 billion, indicating a decline of 3.7% from the year-ago reported figure.

Nevertheless, the consensus estimates for CCG-Platform revenues stands at $9.057 billion, suggesting growth of 5.9% from the prior-year quarter.

Enterprise Weakness to Hinder Data-Centric Business Prospects

Intel’s data-centric business model primarily comprises the Data Center Group (“DCG”), Internet of Things Group (“IOTG”), Non-Volatile Memory Solutions (“NSG”), Programmable Solutions Group (“PSG”), Mobileye and other business units.

In the third-quarter earnings conference, management noted that data-centric business is projected to decline approximately 25% year-over-year in the fourth-quarter.

Sluggish data center demand across enterprise and government end-markets owing to coronavirus crisis led weakness in data-centric businesses is likely to have affected Intel’s fourth-quarter results.

Notably, the Zacks Consensus Estimate for DCG revenues currently stands at $5.289 billion, indicating a decline of 26.7% from the year-ago quarter.

However, growing adoption of cloud-based solutions, across mobile compute, and network infrastructure for 5G, triggered by the momentum in coronavirus crisis-induced work-from-home wave, is likely to have cushioned the anticipated decline.

Also, solid uptick in high-performance Xeon Scalable processors, which are integrated with Optane DC Persistent Memory solution, might have supported DCG performance in the quarter to be reported.

Moreover, strength in memory vertical owing to cloud storage demand, and improvement in NAND pricing trends are anticipated to get reflected in NSG segment’s fourth-quarter results. Also, the company’s non-volatile memory business is likely to have benefited from momentum in Optane modules.

Growing demand for server solid state drives (SSD) in datacenters, which has been driving growth in the NAND market, might have benefited the fourth-quarter execution.

Markedly, the Zacks Consensus Estimate for NSG revenues is currently pegged at $1.09 billion, indicating a decline of 10.4% over the prior-year quarter.

Furthermore, Mobileye’s new design wins and increasing proliferation of IoT and stabilizing automotive industry may have contributed to Intel’s fourth-quarter performance. Growing clout of Mobileye’s SuperVision surround-view advanced driver-assistance system (ADAS) in premium electric vehicles (EV) bodes well.

However, sluggishness across Intel’s Internet of Things Group (IOTG) end markets, especially retail and industrial, is likely to have affected revenues in the quarter under review. Intel currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Further, lower automotive production due to reimposition of lockdowns is likely to have remained a concern for Mobileye.

The Zacks Consensus Estimate for IOTG revenues currently stands at $649 million, indicating decline of 29.5% from the prior-year reported figure.

Notably, PSG segment is also anticipated to report decline in the fourth quarter. The Zacks Consensus Estimate for PSG revenues currently stands at $400 million, suggesting decline of 20.8% from the prior-year reported figure. Sluggish demand across communications and embedded verticals are likely to have negatively impacted the segment.

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