Intel delivers a strong Q4 in spite of challenges

The semiconductor giant continues to face production challenges and renewed competition, but it fared better than expected in 2019 and foresees a strong first quarter.

In spite of a raft of challenges it faced over the year, Intel finished its fiscal 2019 with a strong fourth quarter, delivering better-than-expected results and a strong outlook for Q1 2020. The stock climbed upwards in after-hours trading. 

Fourth quarter earnings per share (EPS) came to $1.52 on a non-GAAP basis, Intel reported Thursday. It achieved record Q4 revenue of $20.2 billion, up 8 percent year-over-year. 

Wall Street was looking for earnings of $1.25 per share on revenue of $19.23 billion. 

For the full fiscal year, Intel set an all-time revenue record of $72 billion, up 2 percent year-over-year. The company attributed its growth to what it calls its "data-centric" businesses, which includes its Data Center Group, its IOT Group, Mobileye, the Non-Volatile Memory Solutions Group (NSG) and its Programmable Solutions Group (PSG).  That's effectively everything outside of its PC business. 

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"In 2019, we gained share in an expanded addressable market that demands more performance to process, move and store data," CEO Bob Swan said in a statement. "One year into our long-term financial plan, we have outperformed our revenue and EPS expectations. Looking ahead, we are investing to win the technology inflections of the future, play a bigger role in the success of our customers and increase shareholder returns."

Exiting this quarter, Intel's data-centric collection of businesses now accounts for greater than 50 percent of its business. 

"Several years ago, we began a transformation to reposition the company to take advantage of the data revolution that is reshaping computing... but our journey is just beginning," Swan said on a conference call Thursday. "To reach our multiyear goals, we will continuously focus on three key priorities: Accelerating growth, improving execution and deploying our capital for attractive returns."

In 2019, Intel generated a record $33.1 billion cash from operations and $16.9 billion of free cash flow, and it returned approximately $19.2 billion to shareholders. 

Over the past year, Intel has had to deal with ongoing production issues, changes in leadership and renewed competition from AMD and Qualcomm. The chipmaker also saw new competitive pressure from companies like Amazon, which announced instances based on its own Graviton2 processor. Intel also sold its modem business to Apple

Intel remains the overwhelmingly dominant player in both the PC market (with 80 percent market share) and in the server market (accounting for more than 90 percent of the market). And in 2019, Intel retook its spot as the top vendor in worldwide semiconductor revenue. 

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In Q4, Intel's Data Center Group brought in $7.2 billion, up 19 percent year-over-year. For the full fiscal 2019, DCG accounted for $23.5 billion, up 2 percent. Growth was driven by "robust demand" from cloud service providers and a strong mix of 2nd Gen Xeon Scalable processors, Intel said. 

The Internet of Things Group achieved Q4 revenues of $920 million, up 13 percent over the year prior. Full-year IOT revenue came to $3.8 billion, up 11 percent. Intel attributed the segment's growth to business in the retail and transportation sectors.

Mobileye revenue in Q4 was $240 million, up 31 percent. The autonomous-driving business brought in $879 million for the year, up 26 percent. 

NSG revenue in Q4 was $1.2 billion, up 10 percent. The segment brought in $4.4 billion for the full year, up 1 percent. PSG revenue in Q4 was $505 million, down 17 percent. PSG revenue for the full year was $2 billion, down 6 percent. 

The Client Computing Group in Q4 brought in revenues of $10 billion, up 2 percent. Its full-year revenues were $37.1 billion, which was flat year-over-year. Growth came from higher modem sales and desktop platform volumes, Intel said. The company noted that major PC manufacturers have introduced 44 systems featuring the new 10nm-based Ice Lake chips. 

Demand for CPUs has continued to outpace supply, Swan acknowledged Thursday.

"We're continuing to add capacity, so we're not constraining our customers' growth," he said. "Across our 14- and 10-nanometer nodes, we're adding 25 percent wafer capacity this year to deliver a high single-digit increase in PC unit volume. This will enable us to meet market demand, deliver our 2020 financial plan and increased inventory to more normalized levels. Our near-term challenge is working with our customers to support their desired product mix. Our process technology execution continues to improve."

Intel on Thursday also announced that its board of directors approved a 5 percent cash dividend increase to $1.32 per share on an annual basis. The board declared a quarterly dividend of 33 cents per share on the company's common stock.

Intel gave a fiscal 2020 revenue outlook of approximately $73.5 billion, as well as a Q1 revenue outlook of approximately $19 billion.

Analysts are expecting revenue of $17.19 billion in Q1.