Intel is set to report Q1 earnings after the bell this afternoon. Intel is currently working on transforming their business from primarily a server of the shrinking PC industry to one that also serves the ‘internet of things' market and the government IT system security market.

Key Metrics/Guidance

  • Q1: Consensus calls adj EPS of $0.47 on revenues of ~$13.9 bln (+8.7% Y/Y).
    • Guidance for revs of $13.6-14.6 bln and gross margin 62% (+/- 2%).
  • Q2: Q2 revenue guidance. Current Consensus calls for Q2 revenues of ~$14.3 bln.
  • FY16: With Q4 earnings, the company raised FY16 revs guidance to mid-to-high-single digit growth from mid-single digit growth (current Consenses +5.7%) after completing its Altera acquisition early in FY16.
  • Q4 Business Unit Trends
    • Client Computing Group revs of $8.8 bln (~59% total revs), down 1% Y/Y.
    • Data Center Group revs of $4.3 bln (~29% total revs), up 5% Y/Y.
    • Internet of Things Group revs of $625 mln (~4% total revs), up 6% Y/Y.
    • Software and services operating segments revs of $543 mln (~4% total revs), down 3% Y/Y.
    • Intel is currently working on transforming their business from primarily a server of the PC industry to one that also serves the expanding ‘internet of things' market and the government IT system security market. This transformation can be seen in the growth in revenues from its Data Center Group and Internet of Things group, as well as the decrease in revenues from its Client Computing Group.
    • Wedbush recently noted that they believe there is little Intel can say at this point following 1) well known weak Q1 PC environment, 2) Seagate's (STX) and Super Micro's (SMCI) negative pre-announcements, and 3) Street estimates continued downward progression into the print to cause the stock to move lower. With expectations already so low, the firm likes the setup into earnings.
    • Cowen noted similar thoughts yesterday, stating that they believe Street estimates already reflect the well-known PC challenges.

TECHS

  • INTC is currently trading between its 200-day ($31.20) and 100-day ($31.90) moving averages.  This set-up is similar to last quarter where shares went into earnings right above its 200-day. Despite the beat on the bottom-line and providing in-line guidance, the shares broke through the 200-day, opening the next day -9%, on concerns over Chinese demand, a softening macro environment, and an overall skittish equity market.'
  • To the up-side, there is limited resistance above the 100-day, if the stock can get through the $32.50 range, with the next major resistance around $34.

Options Activity

  • Based on INTC options, implied volatility stands at ~ 25%, which is 57% higher than historical volatility (over the past 30 days). Based on the INTC Weekly Apr22 $31.50 straddle, the options market is currently pricing in a move of ~4% in either direction by weekly expiration (Friday).

Q4 Recap

  • Despite an earnings beat, INTC sold off following earnings on concerns regarding Chinese demand, the macroeconomic environment, and softer equity markets.