The Zhitong Finance App learned that the established US chip manufacturing giant Intel (INTC.US) will announce its second-quarter earnings report after the US stock market on July 23, EST. In response, investment bank Wedbush said that Intel is expected to deliver “strong” results, but investor sentiment is still a huge uncertain factor.
Wedbush analyst Matt Bryson wrote in a report to clients: “As both revenue and profit margins seem to easily exceed expectations for the second quarter, and a similar situation may also occur in the third quarter (the third quarter may benefit from lower operating expenses after the company previously implemented another layoff plan), we believe the market's performance expectations will rise significantly.”
But at the same time, he added, “However, as we have seen with TSMC, even if performance significantly exceeds expectations and sales growth accelerates again, it will not be enough to offset the sell-off pressure on the semiconductor/hardware sector. “This sell-off stems from some apparently vague concerns, including China's progress in the field of artificial intelligence, overall economic concerns (escalation of the US-Iran conflict, the impact of inflation on future US interest rate policies), and data center spending issues (return on investment of hyperscale cloud computing companies, delays in data center projects, etc.).”
“While Intel may be better positioned to address at least one of these concerns, since Intel's current valuation is significantly above the historical average and above industry competitors, we think it may be more vulnerable to wider market fluctuations (unlike companies such as TSMC or Nvidia).”
Looking ahead to the upcoming financial report, Bryson believes that the data center business may become the main driving force for Intel's quarterly performance growth. Sales of this business are expected to increase 10% month-on-month and 40% year-on-year. He said the company may also benefit from increased pricing capacity as the average sales price (ASP) achieved a double-digit percentage increase during the quarter.
Bryson further stated, “As Intel increases PC CPU production at 18A process nodes and uses this to shift production capacity from the old process to support the growth of the server business, production may increase to a certain extent. As a result, we think the server business is expected to exceed our revenue expectations.” A similar situation may also occur in the PC processor business. Despite weaker-than-expected sales performance, product pricing remained strong.
Bryson explained, “Additionally, this pricing trend should continue into the third quarter (we once again expect a slight increase in this quarter), which makes us think it is more likely that Intel will exceed revenue expectations rather than disappoint.” Finally, Bryson expects Intel's profit margin performance to be “far higher than previously anticipated” due to this increased pricing capability, and this trend is likely to continue for several quarters. Bryson gave Intel a “neutral” rating, with a price target of $95.