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Intel's (INTC) Q2 Earnings: CCG and DCG Segment in Focus

Zacks Equity Research

Intel INTC is set to report second-quarter 2019 results on Jul 25.

The company is riding high on robust performance from the Client Computing Group (CCG) and data-centric portion of business. Data Center Group (DCG), IoT Group, Non-Volatile Memory Solutions and Programmable Solutions Group form the crux of the company's data-centric business model.

The company’s Non-Volatile Memory Solutions or NSG segment is also anticipated to act as a key catalyst.

Click here to know how the company’s overall Q2 performance is expected to be.

Intel Corporation Price and EPS Surprise


Intel Corporation Price and EPS Surprise

Intel Corporation price-eps-surprise | Intel Corporation Quote


CCG, DCG, NSG & PSG in Spotlight

PC centric part of the CCG segment is anticipated to be down in high-single digits primarily owing to deteriorating ASPs including products with lower core count. The segment revenues increased 4.5% on a year-over-year basis to $8.586 billion in the first quarter. Year-over-year growth in notebook (up 5%) drove segment results, which was offset partially by a decline of 3% in desktop revenues.

Management noted strength in the commercial, modem and gaming business. However, PC volumes declined 7% on a year-over-year basis. Meanwhile, Notebook ASP and Desktop ASP increased 13% and 7%, respectively, in the last reported quarter.

Although the company gained modem share, weaker smartphone demand, sluggishness in demand from China and softness in NAND pricing is expected to impact modem demand in the to-be reported quarter. Further, expenses pertaining to 10-nanometer (nm) ramp and constrained supply are likely to impact the upcoming quarterly results.

The Zacks Consensus Estimate for CCG is pegged at $8.06 billion, indicating a decline of 7.71% from the year-ago quarter.

Meanwhile, Data-centric business is anticipated to be down in high-single digits in the to-be-reported owing to softness in NAND pricing and sluggishness in data center demand. Management anticipates DCG segment to be flat sequentially.

Management stated that data-centric businesses were down 5% collectively in the last reported quarter. Further, DCG revenues declined 6.3% year over year and came in at $4.902 billion.

However, growth was broad-based with strong demand for high-performance products, including Xeon Scalable with strength in Xeon ASPs.

Intel’s strategy of expanding TAM beyond CPU to adjacent product lines like silicon photonics, fabric, network ASICs, and 3D XPoint memory is likely to act as a tailwind in the to-be-reported quarter.

The Zacks Consensus Estimate for DCG is pegged at $4.91 billion, compared with $5.55 billion reported in the year-ago-quarter.

NSG revenues declined 12% year over year to $915 million, on account of softness in NAND pricing pressures. Moreover, segment’s margin in the second quarter is expected to be down due to overall market weakness and NAND ASP weakening.

The Zacks Consensus Estimate for NSG unit stands at $890 million, compared with $1.08 billion reported in the year-ago-quarter.

PSG's data center segment surged 2.4% year over year in the last reported quarter compared with the year-ago quarter owing to weakness in cloud and enterprise. .

Revenues from Cloud & Enterprise end market declined 55% year over year.

However, robust performance of communications end markets, and strength in embedded products is expected to drive PSG’s top line.

The Zacks Consensus Estimate for PSG is pegged at $526 million, indicating an improvement of 1.7% from the year-ago quarter.

Zacks Rank & Key Picks

Intel currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Mitek Systems, Inc. MITK, Alteryx, Inc. AYX and SYNNEX Corporation SNX, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Mitek Systems, Alteryxand SYNNEX have a long-term earnings growth rate of 15%, 13.7% and 12%, respectively.

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