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Intel Beats Expectations, but Shares Fairly Valued

The wide-moat semiconductor maker had a solid quarter, and shared an updated product roadmap that will have implications across its industry.


Shares of  Intel (INTC) rose in after-hours trading after the firm reported solid second-quarter results and even better guidance relative to expectations. Seasonally a rough period for personal computer sales, Intel's second quarter featured better-than-projected client computing group performance, while the data center group continued its recent streak of year-over-year growth. Management also shed light on an updated product roadmap that will have implications across the semiconductor landscape.  Our fair value estimate of $31 for this wide-moat firm is intact, as we believe the current share price accurately reflects Intel's prospects.

Second-quarter revenue was $13.2 billion, up 3% sequentially due to strength in the data center, but down 5% from the same period in 2014 because of weaker PC sales. The client computing group, which encompasses the PC and mobile groups, had revenue of $7.5 billion, which was surprisingly up 2% from last quarter. Of note was desktop platform average selling prices up 6% from last year due to a stronger product mix skewed to higher-end core i7 processors. The data center group had revenue of $3.9 billion as platform volume and ASPs rose 10% and 5%, respectively. Even amid a difficult quarter, we were impressed by the 200-basis-point increase in gross margin, primarily due to lower start-up costs, higher ASPs, and fewer 14-nanometer write-offs for poorly processed wafers. We believe this shows how Intel's 14-nanometer process technology has matured to the point that we can see incremental gross margin expansion as challenges encountered during the initial ramp subside.

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Abhinav Davuluri does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.