Intel & IBM Earnings Beat Estimates, Yet Guidance Causes Shares Drop


Intel Corporation and IBM, two bellwethers for the tech industry, reported earnings after the close of the market. Analysts had expected INTC to report $0.49 EPS and $13.2 billion in revenue, it beat on both, but analysts were concerned over the drop in PC sales. IBM was forecast to earn $3.61 a share on revenue of $25.4 billion. Revenue for IBM came in at $24.7 billion, while EPS was $3.62.  Intel Corporation (NASDAQ:INTC) and International Business Machines Corp. (NYSE:IBM) shares are down 2.24% and 3.5% in after hours trading.

Intel & IBM Earnings Beat Estimates, Yet Guidance Causes Shares Drop

On September 7 Intel said it is now expecting capex to come in somewhere below the company’s prior guidance for $12.1 billion to $12.9 billion, due to the company accelerating its re-use of equipment at the 14nm node. Some analysts were therefore not expecting great results.

Intel Corporation (NASDAQ:INTC) did better in the September quarter than the midpoint of its downwardly revised guidance given on September 7, but the December quarter sales outlook is far below normal seasonality, and gross margin for December is expected to be sharply down. Capital spending for the full year 2012 is far below the original plan too. Some analysts think that Intel is reacting appropriately to the business weakness it is seeing by rapidly cutting capex and production, and reducing operating expenses.

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Revenue was $13.5 billion for the quarter (flat sequentially down 5.5% year/year), above the midpoint of Intel’s downwardly revised guidance of $13.2 billion. Intel is guiding for coming quarter sales of $13.6 billion +/$ 500 million, compared to consensus $13.7 billion and our $14.2 billion estimates prior to the release.

Gross margin of 63.3% compares with Intel Corporation (NASDAQ:INTC)’s revised guidance for gross margin of 62%+/1 percentage point (pp). Gross margin guidance for the coming quarter is 57% +/2pp (GAAP). Intel said it is cutting its production significantly, and its gross margin guidance assumes about $500 million of under-utilization charges, without which, the gross margin guidance midpoint might have been about 61%, according to Wells Faro Equity Research.

GAAP EPS reported was $0.58, and was above consensus of $0.49.

Inventory at the end of the quarter was $5.32 billion, up from $4.90 billion at the end of the prior quarter.

PC Client (desktop and notebook) unit shipments were up 1% sequentially, with ASP down 1%. Year over year PC client units were down 4%, with ASP down 4%. Data center unit shipments were up 1% sequentially, with ASP down 7%, with units up 4% year over year and ASP up 1% year over year.

For the full year 2012, Intel now expects capital spending to be $11.3 billion, far below the $12.9 billion original plan.

For IBM, the combination of recently refreshed products and continued server share gains from HP puts upward pressure on IBM Systems & Technology segment revenue, and gross margin estimates (Exhibits 6-9). Jefferies  expected Y/Y increases in revenue and gross margin beginning in C4Q and continuing through CY13. Demand for its software services was strong.  Cost management helped the bottom line, but revenue was hit by a strong dollar, which led to large FX losses.

The CFO on the conference call states that there was a ‘falloff’ in North American Sales.


Disclosure: No position in INTC or IBM