Intel Q3 preview: Where next for Intel shares?

Intel shares have struggled to push higher this year and have underperformed against rivals amid the global supply crunch of chips.

Tech (2)

When will Intel release Q3 results?

Intel is scheduled to release third quarter earnings after the markets close on Thursday October 21.


Intel Q3 earnings preview: what to expect from the results

Intel beat its own guidance and market expectations in the second quarter, driven by persistent strength from its Client Computing Group and a recovery in its Internet-of-Things division and the enterprise side of its Data Center Group. Meanwhile, its PC and Mobileye businesses both reported record revenues.

Data-Center sales will be closely-watched considering Intel has been reporting declines this year while rivals like Advanced Micro Devices and NVIDIA have been growing. But rising demand from enterprise customers in the Data Center, cloud companies and the automotive sector is likely to provide a boost for Intel and the wider market while the global chip shortage persists, with some analysts expecting the unit to return to growth in the third quarter. Still, volume growth could remain constrained by the supply environment.

Investors will be keen to hear how demand for Intel’s products are faring amid the supply chain crunch. Sentiment will have been hit by Apple revealing its new computers will be powered by its new M1 chips, cementing it transition away from using chips made by Intel, which has been providing high-end chips for Apple’s computers for over a decade.

That is significant considering Intel’s IDM 2.0 strategy, which aims to shuffle the way Intel operates in the market. The strategy is underpinned by three major moves. The first is to build-out capacity of its own factories to remain a leader in chip and process technology. The second is to increase the use of external foundries that it already uses to make everything from communications and connectivity products to graphics and chipsets. The third is to enter the foundry space itself so it can make chips for those without their own fabrication plants and plug the gap between supply and demand in the market.

The key thing investors want to understand about the new strategy is how margins will fare. Intel has disappointed markets with contracting margins of late and the fact CEO Pat Gelsinger has pushed for the US government to offer subsidies to help build-out chip manufacturing to wean the country off its reliance on Asian countries like Taiwan and South Korea suggests the new strategy could pressure profitability without government help.

However, Intel has a decision to make about how much it wants to reveal this week considering it has an analyst day pencilled in for November 18. Markets currently expect Intel to hold-off on big-ticket items until next month but are nonetheless hoping to gain some insight in the results this week. With this in mind, the gross margin outlook for the fourth quarter will be on the radar. For context, Intel is aiming to deliver a GAAP gross margin of 53% in the third quarter, down from 57.1% in the second.

Intel has guidance targeting $18.2 billion in non-GAAP revenue and GAAP EPS of $1.08 in the third quarter. Wall Street believes revenue will come in on target at $18.24 billion compared to $18.33 billion last year while reported EPS is forecast to come in just below the company’s target by edging-up to $1.07 from $1.02 the year before.

Notably, Intel beat expectations across the board in the second quarter, prompting it to raise its full year ambitions for the second time this year. Intel is currently targeting non-GAAP revenue of $73.5 billion in 2021 and GAAP EPS of $4.09, which would compare to the $77.9 billion in revenue and EPS of $4.94 delivered in 2020. Some analysts see an opportunity for guidance to be raised again this week, so the outlook will be under the spotlight.

It is important to note that Intel shares have experienced significant falls on the day of results over the past two quarters.

Intel shares have gained 9.7% since the start of 2021 but trade over 20% below the highs we saw in April. Still, brokers covering Intel believe the stock is undervalued by 13.9% versus their average target price of $62.06.


Where next for the Intel share price?

Intel share price has been trading range bound for the past two months, capped on the lower side by $51.40 and on the upper band by $55.50. The share price trades towards the upper limit of the holding patter having recently retaken its 50 sma. The RSI is also supportive of further upside. 

Buyers might look for move over $55.50 to expose the 200 sma at $57.20 and target horizontal resistance at $58.40 the June high. 

Meanwhile sellers might wait for a move below $51.50 for confirmation of further downside bringing $48.80 into play the year to date low. 

Where next for Intel shares?


How to trade Intel shares

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