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Chipmaking giant Intel (INTC Free Intel Stock Report) has reported both good and bad news with its September-quarter earnings release. On the plus side, respective revenues and share-net figures were above and on par with our expectations. However, fourth-quarter guidance didn't live up to the hype, and Intel shares are trading notably lower this morning.

Specifically, share earnings came in at $0.69 for the third quarter, a 7.8% increase over the year-earlier tally. A better-than-expected sales figure (nearly $15.8 billion versus our $15.6 billion estimate) helped boost bottom-line results. On a year-over-year basis, the top line rose 9.1%, while the gross margin advanced 130 basis points. Worth noting, in mid-September, management announced that revenues for the third quarter would be above prior expectations, thanks to inventory replenishment in the personal computer industry and a slight increase in PC-related demand.

The Client Computing Group posted a 21% and 5% sequential and year-over-year increase in revenues, totaling $8.9 billion for the quarter. What's more, Data Center Group revenues reached a record $4.5 billion, which was a 13% increase from the June period and a 10% advance from last year's comparable-period tally. The Internet of Things segment revenues also hit an all-time high of $689 million, a double-digit sequential and year-to-year improvement.

Results for the other three units were more of a mixed bag. On point, the Intel Security Group registered flat sequential revenues, though the top line did increase 6% relative to last year. The Programmable Solutions Group's (from the Altera purchase) revenues were down 9% sequentially, to $425 million. Finally, the Non-Volatile Memory Solutions Group posted a 17% sequential increase in revenues, though comparisons fell 1% on a year-to-year basis.

Meantime, the forecast for the December period was less inspiring. Specifically, management looks for sales to come in at $15.7 billion (plus or minus $500 million), while we had looked for $15.9 billion at the time of our late-September full-page report. The gross margin is likely to come in around 63% (on a non-GAAP basis). That said, we have pared our December-quarter revenue and share-net views from $15.9 billion and $0.73, to roughly $15.7 billion and $0.68. The revenue expectation is slightly below normal seasonal trends, while gross margin guidance reflects start-up costs related to investment in new manufacturing technologies. We also have reduced our expectations for full-year share earnings by a nickel, to $2.50. Our revenue estimate remains roughly unchanged at $58.7 billion.

Intel's long-term fortunes depend largely on its ability to diversify its operations beyond the mature personal computer segment. While this unit helped to lift third-quarter results, the long-term trend is for slowing demand. The company has done a good job of broadening its scope thus far. The recent purchase of Altera, which specializes in programmable logic devices, is a step in the right direction. Furthermore, as we noted in our September full-page report, management recently announced a partnership with ARM Holdings, which is set to begin in the first half of 2017. This gives Intel the opportunity to increase its muscle in the lucrative smartphone space.

Though some uncertainty exists regarding Intel's success in diversifying its operations, we feel these shares remain a solid choice for conservative investors seeking a technology presence. The healthy dividend provides support and should pique the interest of income-seeking accounts.


About The CompanyIntel Corporation is a leading manufacturer of integrated circuits. In addition to primarily supplying manufacturers of personal computers, the company serves a multitude of other global markets, including communications, industrial automation, military, and other electronic equipment. Intel’s product line consists of microprocessors, with the Pentium series being the most notable. It also manufactures microcontrollers and memory chips, and the company sells computer modules and boards, and network products.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.