Ahead of Intel's (INTC) Q1 Earnings: CCG & DCG in Focus

Zacks Equity Research
·6-min read

Intel INTC is slated to release first-quarter 2021 results on Apr 22.

The chipmaker’s first-quarter performance is expected to have benefited from strength in its client computing business, courtesy of growing PC demand amid the coronavirus crisis-induced work-from-home wave.

Moreover, strong momentum of its latest high-performance Xeon processors may have contributed to the to-be-reported quarter’s performance.

Markedly, encouraging trend in PC shipments in the first quarter, driven by increased demand and improvement in the supply chain, might get reflected in first-quarter results.

However, stiff competition from Advanced Micro Devices AMD, primarily post Xilinx acquisition, is likely to have put pricing pressure and limited margin expansion. Markedly, AMD has been gaining from robust uptake of its second generation EPYC server processors.

In a bid to maintain its competitive position and improve ASPs, Intel has been increasing investments on accelerated ramp up of 10 nm products and improvement in 7 nm production. This is likely to have weighed on first-quarter profitability.

Also, incremental adoption of latest Core vPro and Lakefield processors, along with Tiger Lake series offerings, is likely to have favored first-quarter revenues.

Intel Corporation Revenue (Quarterly)

Intel Corporation Revenue (Quarterly)
Intel Corporation Revenue (Quarterly)

Intel Corporation revenue-quarterly | Intel Corporation Quote

Click here to know how the company’s overall first-quarter performance is expected to be.

Remote Work Trends to Boost Client Computing Segment

Intel’s PC-centric business is represented by this segment. Notably, Intel bundles PCs, notebooks, 2-in-1s, tablets and other computing devices under the Client Computing Group or CCG segment.

Incremental adoption of the latest processors and deal wins from Google, Microsoft, among others, are anticipated to have contributed to the first-quarter performance.

Moreover, new design wins for its 10 nm mobile CPU — Ice Lake — is likely to have been a tailwind for Intel.

Furthermore, encouraging trend in PC shipments in the first quarter is likely to have benefited CCG segment revenues. Per Gartner’s preliminary data, PC shipments in first-quarter 2021 improved 32% year over year to 69.9 million units.

Also, growing clout of 11th Gen Intel Core processors (dubbed "Tiger Lake") integrated with Intel Iris Xe graphics is likely to have been a tailwind. Markedly, the new processors are based on Intel's 10 nm SuperFin process technology, which offers performance enhancement when compared to a full-node transition.

In fourth-quarter 2020 earnings conference, management noted that more than 150 designs from major PC makers are in the market. Moreover, strong momentum in its 11th Gen Intel Core processors helped it in gaining market share with PC CPU units witnessing growth of 33%. The ongoing adoption is likely to get reflected in first-quarter results.

However, stiff competition in commercial PC business might have weighed on the segment’s revenues. Markedly, 10th-generation Intel Core H-Series adoption face stiff competition from AMD’s Ryzen 7 powered devices in the market.

Markedly, the Zacks Consensus Estimate for CCG is currently pegged at $10.018 billion, indicating growth of 2.5% from the year-ago reported figure.

Enterprise Weakness to Hurt Data-Centric Business

Intel’s data-centric business model primarily comprises the Data Center Group (“DCG”), Internet of Things Group (“IOTG”), Non-Volatile Memory Solutions (“NSG”), Programmable Solutions Group (“PSG”) and other business units.

In the fourth-quarter earnings conference, management noted that data-centric business is projected to decline approximately 25% year over year in the first-quarter.

Sluggish data center demand across enterprise and government end-markets due to coronavirus crisis led weakness in data-centric businesses is likely to have affected Intel’s first-quarter performance.

Notably, the Zacks Consensus Estimate for DCG revenues currently stands at $5.862 billion, indicating a decline of 16.2% from the year-ago quarter.

However, growing adoption of cloud-based solutions, across mobile compute, and network infrastructure for 5G, triggered by momentum in coronavirus crisis-induced work-from-home wave, is likely to have cushioned the anticipated decline.

The chipmaker ramped up production volume of its first 10 nm based Xeon Scalable CPU (dubbed Ice Lake) through the first quarter. The new processors will help customers across cloud, network, and edge verticals to boost performance leveraging Intel’s expertise in PCIe Express Gen 4, next generation Optane Persistent Memory and SGX security enhancements.

Growing popularity of latest Alder Lake processors for mobile and desktop PCs, and Sapphire Rapids for the data center bodes well. Both the products leverage enhanced SuperFin process technology and various architectural improvements.

Likewise, strength in first discrete GPU for the data center, already enabling enhanced cloud gaming experiences for clientele, which includes Tencent TCEHY, might have contributed to DCG’s performance in the quarter to be reported.

Additionally, infusion of AI favors growth prospects in data center training and enhances strength of Intel Xeon inference capabilities. Markedly, Amazon AMZN announced EC2 instances that will utilize Habana Gaudi AI training accelerators.

Besides, momentum in Optane modules is anticipated to get reflected in NSG segment’s first-quarter results.

Markedly, the Zacks Consensus Estimate for NSG revenues is currently pegged at $337 million, as the outlook excludes the NAND business. NSG revenues amounted to $1.338 billion in prior-year quarter.

Furthermore, Mobileye’s new design wins and increasing proliferation of IoT and stabilizing automotive industry may have contributed to Intel’s first-quarter performance. Growing clout of Mobileye’s SuperVision surround-view advanced driver-assistance system (ADAS) in premium electric vehicles (EV) bodes well.

The Zacks Consensus Estimate for Mobileye revenues currently stands at $358 million, indicating growth of 40.9% from the prior-year reported figure.

However, sluggishness across Intel’s Internet of Things Group (IOTG) end markets, especially retail and industrial, is likely to have affected revenues in the quarter under review. Intel currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for IOTG revenues currently stands at $787 million, indicating a decline of 30.8% from the prior-year reported figure.

Meanwhile, PSG segment is also anticipated to report decline in the first quarter. The Zacks Consensus Estimate for PSG revenues currently stands at $446 million, suggesting a slump of 14.1% from the prior-year reported figure. Sluggish demand across communications vertical on account of customer 5G ASIC transitions, are likely to have negatively impacted the segment.

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