Work-From-Home Trend Bolsters Demand for Intel

Intel INTC reported better-than-expected first-quarter results amidst a turbulent economic climate stemming from COVID-19. Strong cloud and mobile PC demand bolstered revenue, driven by the increased impetus for working and learning from home. Management expects this momentum to continue into the second quarter. While the firm provided second-quarter guidance, it refrained from providing its typical full year outlook given the significant economic uncertainty. Given the expected contraction of global GDP this year, we expect the second half of 2020 to be weaker for Intel. Nevertheless, we believe the firm has done a nice job in response to COVID-19, with all its factories continuing to run and greater than 90% on-time deliveries. We look forward to a bevy of 10-nanometer product ramps throughout 2020, including its Tiger Lake CPUs for laptops, Ice Lake server CPUs, and 5G Snow Ridge base station system-on-chip. We are maintaining our $70 fair value estimate for wide-moat Intel. Shares look attractive at current levels.

First-quarter revenue was $19.8 billion, up 23% year over year. Intel enjoyed broad-based growth except for the Internet of Things group, which saw weakness in industrial and retail end-markets. Data center, or DCG, and client computing, or CCG, groups were up 43% and 14%, respectively. Cloud sales grew 53% year-over-year and overall DCG ASPs rose 13%. We think competition from AMD will pick up in subsequent quarters, which will make it difficult for Intel to sustain these growth levels throughout 2020. Notebook CPU volumes rose 22% year over year, as Intel both mitigated CPU shortages and satiated the increased work from home-related demand. Gross margins were up 400 basis points year over year to 60.6%, led by strong ASPs. Management expects second-quarter sales to be at a midpoint of $18.5 billion, which would be up 12% year over year, with PC-centric sales flat to up slightly and data-centric sales up 25%.

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