Intel Corp Faces Increased Challenges
Intel Corporation (NASDAQ:INTC) stock is likely to take a hit after the company issued weak guidance for the current quarter. However, INTC stock has been quite resilient, posting 17% gains over the past one year as compared to 8% generated by the broader S&P 500.
Intel Corp reported record quarterly revenue of $15.8 billion, a 9% year-over-year increase and operating profit of $4.5 billion on Tuesday. The company reported adjusted third-quarter earnings of $0.80 a share, which was ahead of street expectations. The company has gained on account of lower drop in PC business and healthy demand by cloud companies. However, lower than expected revenue guidance for the current quarter shall weigh on the Intel stock. (Source: “News Release,” Intel Corporation, October 18, 2016.)
At present, PC chips are the biggest source of revenue for the company. Amid the declining trend in PC demand across the globe, Intel has been focusing on its other businesses like data center and Internet of Things (IoT). The chip maker has posted record sales in the data center and Internet of Things units. The third quarter revenue from cloud service providers rose 32% from the last year. Sales in the IoT group rose about 19% to $689 million.
In April this year, Intel had announced that it would lay off 12,000 people as the company was under pressure from the continuing downturn in global PC demand. As explained by Intel CEO Brian Krzanich, the layoffs were part of the company’s restructuring efforts. He wanted Intel – the PC company, to transform to a cloud and connected devices company. Intel redirected its efforts to supplying chips for smartphones, sensors and cloud computing. (Source: “Intel to Cut 12,000 Jobs as PC demand Plummets,” New York Times, April 19, 2016.)
Intel stock had taken a hit on account of these restructuring costs. Intel CEO Brian Krzanich has said that the results indicate company’s continuing transformation to a company that powers the cloud and connected devices. The results show that the company is slowly moving in that direction, albeit it is proving to be a costly affair.
As the company works on its renewed efforts to focus on growing businesses like data centers, cloud computing and IoT, investors would like to see the effect on sales. If Intel can boost its sales together with its restructuring efforts, INTC stock shall continue its upward journey again.
