Intel Corporation Needs To Respond To AMD Ryzen Now

Following the launch of AMD’s Ryzen chips, investors will be watching Intel Corporation (NASDAQ:INTC) earnings closely this week.

Chip giant Intel Corporation (NASDAQ:INTC) is scheduled to report its financial results for the second quarter of FY2017 on Thursday, July 27th. Notably, the company has a positive track record of delivering earnings surprises, having surpassed earnings estimates in each of the preceding four quarters. In the last four quarters, Intel has delivered an average surprise of 6.95%, beating analyst estimates by a massive 11.3% in the most recent quarter. While this makes Q2 results interesting, a lot will hinge on Intel’s commentary on upcoming product developments and its financial guidance for the third quarter of 2017. And given Intel’s stock returns this year, the company really needs every bit of optimism it can generate.

Intel stock has been a poor performer so far if you look at the year-to-date returns, with the shares down 4.25% during this period, even as rival chip stocks have generated enviable returns for investors. At the very least, Intel will need to meet its guidance for the quarter. So, let’s take a look at the company’s own projections, to begin with.

Intel Earnings – Q2 Guidance And Analyst Estimates

Last quarter, Intel projected its Q2 revenue at $14.4 billion, with gross profit margin at 62%. The Chipzilla forecast an operating income of $3.6 billion. In terms of non-GAAP Earnings Per Share (EPS), Intel guided for an EPS of $0.68 a share. On a GAAP basis, the company predicted it would bring in $0.53 per share. Intel’s guidance translates to a 6% YoY growth in revenue, and a 15% YoY growth in Earnings Per Share.

Analysts expectations also seem to be largely in line with Intel’s own projections. Analysts expect the chipmaker to deliver revenue of $14.41 billion, and non-GAAP earnings per share of $0.68. From the looks of it, analysts don’t seem to be expecting Intel to surpass its guidance by a huge margin, in spite of its solid track record of beating analyst estimates over the last year or so. This quarter’s results will be watched keenly for one other reason. The second quarter marks a full quarter of availability for AMD’s (NASDAQ:AMD) Ryzen 7 line up of CPUs and nearly two and half months of its Ryzen 5 chips. These chips have put AMD in a competitive position, and analysts are likely to look closely at Intel’s performance to assess their impact on the Chipzilla.

An Eye On Intel’s Third Quarter Guidance.

While a big beat like we saw in Q1 will undoubtedly help the sentiment around the stock, if it doesn’t, the focus is likely to shift to the company’s guidance for the third quarter of 2017. The consensus revenue estimate for the third quarter is reportedly at $15.32 billion, while earnings-per-share estimate is $0.74. At the surface, both of these numbers translate to year-on-year declines, from $15.78 billion and $0.80 per share, respectively. In percentage terms, these numbers represent a decline of close to 3% on the revenue front and a fall of about 7.5% in terms of non-GAAP EPS. However, it’s important to note that these declines reflect the omission of Intel Security from the company’s numbers this year.

With AMD’s EPYC server CPUs making quite an impression following their launch in the third week of June, all eyes will be on Intel’s commentary pertaining to the competitive landscape in its data center business, which it has long dominated. Investors are also likely to be watching out for updates on the company’s next generation 10 nanometer chips.

Intel Stock Short Interest And Technicals.

If Intel does manage to impress The Street with its earnings, short interest is likely to lend handy support to the stock. As a percentage of float, short interest isn’t huge, at just about 2%. Short interest in the stock has declined quite a bit as per the latest available data, with about 94 million shares shorted, down from 102 million during the previous reporting cycle. However, with days to cover approaching 4 days, short covering could drive the stock higher in the event of an earnings beat.

The technical indicators currently show a negative bias, with both, the 50 day SMA and the 100 day SMA falling below the 200 day SMA earlier this month. With all 3 SMAs currently in the $35 to $35.44 range, there will be a strong resistance at these levels, which are less than a Dollar away. The next level of support is from the 20 day SMA at about $34.17. If you’re looking for great tech stocks, check out our top stock picks from the tech sector, which have beaten the NASDAQ by over 154%. If you’re looking for technical trading ideas, you must check out our daily trading ideas section.