Overview
I was initially disappointed by the Q3 results, which by the numbers look like a revenue decline. Intel (NASDAQ:INTC) also did not report a beat to guidance/estimates for the first time in six quarters.
The market as well was likely looking for a beat, but got none. Hence, the stock went back to its post-Q2 lows. In subsequent days, Intel even further dropped below its March low.
However, after a review of the results and looking at the big picture, the results Intel delivered are actually in line with (or slightly better than) Intel's expectations at the beginning of the year, and the growth fundamentals remain in place. COVID-19 has provided both tailwinds as well as headwinds.
In brief, the reason Intel didn't exceed expectations was steep drops in memory and enterprise: one is a legacy business that hasn't shown any growth for years anyway (and despite the large drop is actually still flat YTD), while Intel just sold the other business. On the PC side, weak ASPs offset volume growth, which can be interpreted in two ways: although the segment didn't really grow revenue, Intel maintained or even grew market share as it had expected, in spite of what AMD (AMD) bulls have been warning for all year long.
The results are also in line with Intel's and my own January expectations, when I wrote an article (at a time when Intel stock was between $65-70) with following self-descriptive title, which firmly applies to Q3 and Q4: Intel Earnings And Stock Dependent On Unpredictable Cloud Cycles.
However, this has created some new challenges to Intel's earnings results, over the past two years, that I'd like to highlight. In particular, the unpredictable, highly irregular buying patterns of the cloud service providers are carrying over into the company's earnings results up to a point
