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This article is part of a series tracking the effects of the COVID-19 pandemic on major businesses, and will be updated. It was originally published on April 9.
Intel Corp. could experience a huge early sales boost from companies outfitting stay-at-home workers with computers and a surge in cloud-services adoption, but the long-term picture for COVID-19 effects is not as clear.
Intel INTC, -3.12% started off 2020 with a reversal from a difficult year, reporting that it broke the $20 billion quarterly sales mark for the first time as its fastest-growing segment, data-center chips, surged 19% to $7.2 billion. That time — when China was reporting 830 cases of COVID-19 with 26 deaths and the U.S. had just confirmed its second coronavirus case — seems a world away now after the coronavirus spread across the globe and sent most Americans into their homes to avoid contracting the virus.
As a result, millions of employees who still have jobs in the U.S. now work from home while millions of students take lessons online, making companies like Zoom Video Technologies Inc. ZM, +5.68% wildly popular while stretching the limits of older hardware. Much of that traffic is passing through cloud data centers like those maintained by Amazon.com Inc. AMZN, -0.01%, Microsoft Corp. MSFT, +0.00% and Alphabet Inc.’s GOOG, +0.09% GOOGL, -0.03% Google, which will need new chips to expand capacity.
At the same time, businesses are being prompted to speed up their digital transformations like baby birds being kicked out of a burning nest. With PC, server and data-center sales representing the majority of Intel’s business, there’s little question that the chip giant could benefit from a sales surge thanks to all those dynamics.
“If you’re doing PC and data center, there’s definitely buys that have to happen right now to support demand,” Maribel Lopez, principal analyst at Lopez Research, told MarketWatch in an interview. “We’re going to pull in a lot of demand.”
The question is how long that surge will last, as companies start to slow capital spending to preserve their liquidity and consumers slow down purchases thanks to lost jobs or other economic concerns. Given that some locations like the San Francisco Bay Area issued their first stay-at-home orders in early March, other regions have just started to come around to issuing those orders, so there could be another wave of demand.
“The demand will probably be another quarter’s worth of demand,” Lopez said, likely lasting into mid-summer. “After that, I think, all bets are off with the economy in general.”
Smaller chip company Microchip Technology Inc. MCHP, -1.34% has already said it’s seeing a sales surge but doesn’t expect it to last past initial COVID-19 panic-buying.
What the numbers are saying
Revenue: Back in late January, Intel projected revenue of about $19 billion for the first quarter and about $73.5 billion in 2020. Analysts surveyed by FactSet initially set their first-quarter mark at $18.98 billion by Jan. 31, but expectations declined to $18.63 billion by April 9. The average forecast for the full year declined to $71.92 billion from $73.8 billion as of Jan. 31, FactSet reported.
Earnings: Intel forecast adjusted earnings of $1.30 a share for the first quarter and $5 a share for the year. Analysts project adjusted earnings of $1.28 a share, down from $1.32 a share on Jan. 31, and $4.83 a share for the year, down from $4.98 a share.
Stock movement: Intel shares fell 9.6% in the first quarter of the year, while the Dow Jones Industrial Average DJIA, +1.22%, which counts Intel as a component, declined 23%.
What the company is saying
April 7: Intel pledged another $50 million for pandemic relief efforts following other monetary and PPE equipment donations earlier in March.
March 25: Intel issued $8 billion in debt a day after it suspended its stock repurchases given “uncertainty regarding the length and severity of the pandemic.”
March 19: Intel Chief Executive Bob Swan said in a letter to customers that Intel was using AI and high-performance computing along with Lenovo and BGI Genomics to accelerate the analysis of genomic characteristics of COVID-19.
March 13: Intel said it was implementing work-from-home and social distancing policies along with other protective measures to deal with the pandemic.
March 2: At a Morgan Stanley investor conference, Intel Chief Financial Officer George Davis said the company was operating “on a relatively normal basis,” and that its 24/7 pandemic team had been mindful of the virus from the start. Back then, Intel was focused on China, and its NAND manufacturing plant in Dalian, its test and packaging facility in Chengdu and design centers in Shanghai and Beijing.
What analysts are saying
At least three analysts have upgraded their rating on Intel shares in response to the spread of COVID-19. Of the 44 analysts who cover Intel, 16 have buy or overweight ratings on the stock, while 23 have hold ratings and five have sell or underweight ratings as of April 9, with an average share-price target of $63.76.
• “While we expect the current surge in notebook sales to be relatively short-lived and roll off in the back-half of the year, cloud and service provider data-center spending is expected to remain strong through 2020.” — Raymond James analyst Chris Caso, who upgraded Intel’s stock to market perform from underperform “based on our view that the company is exposed to the right end markets for this pandemic — namely, notebooks and data center.”
• “We have been negative on Intel’s structural trajectory (noting manufacturing issues, share loss, & margin compression on the come) and believe these issues still exist. But in the wake of COVID-19 these may not be the most important issues to focus on at the moment. And in the forthcoming storm we can see potential for Intel to hold up better relative to peers given a solid balance sheet, inexpensive valuation, the possibility for some (relative) near-term demand tailwinds, and numbers that already incorporate a relatively negative 2H scenario.” — Bernstein analyst Stacy Rasgon, who upgraded Intel to market perform from underperform and maintained a $50 price target.
• “This has been a long time [underweight] for us, and we definitely don’t believe Intel has solved its roadmap issues. However, we do believe near-term strength in both the data center and increased work from home trends should supersede ongoing challenges.” — Barclays analyst Blayne Curtis, who upgraded Intel to equal weight from underweight and raised his price target to $58 from $52, adding that the pandemic could also shut down qualification schedules for chips made by rival Advanced Micro Devices Inc. AMD, -0.84% .
• “The geographic spread of COVID-19 has created substantial risk that the economic fallout of the virus might significantly impact the electronics end markets as the year progresses, leading to both a drop in demand for chips as well as an inventory correction.” — Instinet analyst David Wong, who maintained a buy rating on Intel and a $74 price target while saying he sees inventory risks given recent figures from the Semiconductor Industry Association.
• “We believe that strong demand for PCs today is unlikely to continue into the second half of the year as the shift to remote work slows,” which could mean Intel “takes this opportunity to rescind annual guidance and shift to guiding quarter by quarter.” — Wedbush analyst Matt Bryson, who maintained an underperform rating on Intel and a $52.50 price target.
