The impact of the coronavirus outbreak on the highly cyclical semiconductor industry is yet to be fully assessed even as the shutdown is having a devastating impact on businesses. Intel Corp. (NASDAQ: INTC), a market leader in microprocessor technology, is scheduled to publish its first-quarter earnings on Thursday after the market’s close.
There has been a progressive decline in the outlook for S&P 500 components since the pandemic struck. However, technology has helped most enterprises mitigate the impact of the crisis to a great extent. With a large number of people working remotely, employers and organizations are enhancing their data center capacity and cloud computing capabilities, thereby creating a high demand for chips.
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It is expected to have had a positive effect on the finances of companies offering such services, including Intel. Its high-speed Xeon Scalable processor has been a big hit and remains the preferred foundation for AI-infused data center workloads. The recent acquisition of Habana Labs is expected to boost the company’s AI capabilities. Meanwhile, rival chipmaker Advanced Micro Devices (AMD) is giving a tough competition in that area with its EPYC 7Fx2 processors.
Resilience
With strong fundamentals, Intel will likely be able to tackle the present crisis effectively. Recently, it raised dividend by 5% and paused share repurchases to strengthen the cash position, in view of the pandemic-linked uncertainty. That makes Intel one of the few Wall Street firms that offer a good investment opportunity in these difficult times.
The company has been leveraging the rapid adoption of semiconductor-based solutions across industries and continues to ramp up its prowess in the promising areas of big data and cloud computing.
Impressive Show
Intel’s earnings beat estimates consistently in 2019 and the company ended the year on a positive note, mainly on the strength of the data center business and growing demand in the PC segment. In the fourth quarter, solid revenue performance across all the key business segments resulted in a double-digit earnings growth. More than 50% of revenues came from data-centric business.
Q1 Outlook
The trend is expected to have continued in the most recent quarter. Market watchers predict a 43% annual increase in earnings to $1.27 per share in the March-quarter on revenues of $18.67 billion, which represents a 16% growth. The estimate has remained broadly unchanged in the past three months.
Meanwhile, it is doubtful whether the management would maintain its bullish full-year outlook, considering the changed market scenario in the wake of the COVID-19 outbreak.
Peer Performance
AMD will be reporting its latest quarterly results before month-end. Earlier this week, IBM (IBM) reported not-so-impressive results for the first quarter, with weakness in the technology services segment more than offsetting revenue growth in the cloud segment.
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Though Intel made a strong recovery after being hit by the market selloff in early March, the stock lost momentum ahead of the earnings announcement and closed the last session down 2%. In the past twelve months, the shares gained 13%.