Intel Corporation (INTC) Earnings Beat Overshadowed by Product Delays

Wayne Duggan

Intel Corporation (Nasdaq: INTC) reported second-quarter earnings and revenue beats on Thursday afternoon, but the stock dropped more than 8 percent on Friday morning after the company provided a disappointing update on its highly anticipated 10-nanometer processors. Analysts say product delays could cost Intel market share and make INTC stock a risky long-term bet.

Intel reported second-quarter adjusted earnings per share of $1.04 on revenue of $16.96 billion. Both numbers topped consensus analyst estimates of 96 cents and $16.77 billion, respectively. Revenue was up 15 percent from a year ago.

Intel guided for third-quarter EPS of $1.15 on revenue of $18.1 billion, again exceeding Wall Street expectations of $1.08 in EPS and $17.6 billion in revenue.

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"After five decades in tech, Intel is poised to deliver our third record year in a row," CEO Bob Swan says in a statement. "We are uniquely positioned to capitalize on the need to process, store and move data, which has never been more pervasive or more valuable."

Despite the strong second-quarter numbers and positive near-term outlook, Intel investors focused more on commentary from the company related to its 10nm processors. After announcing in April that production of the new processors would be pushed from late 2018 to 2019, Swan said on Thursday that the 10nm products will be available by the holiday season in 2019. The comments seem to imply a late-2019 launch instead of the early 2019 launch investors had wanted.

Bank of America analyst Vivek Arya downgraded Intel stock from "buy" to "neutral" on Friday following the comments and says there are too many risks for Intel at the moment. Arya projects Intel's EPS growth will drop from 20 percent in 2018 to just 5 percent in 2019. He also says 10nm product delays are giving Intel competitors such as Advanced Micro Devices ( AMD) an opening to steal market share.

"The biggest risk to INTC is the year delay in shipments of its next-gen 10nm product while rivals have finally caught up and are enabling [them] to potentially leap frog," Arya says. "INTC has many levers beyond just manufacturing, along with its superior resources and its incumbency, but the headline risk around delays is unlikely to change quickly and could remain an overhang."

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In addition to the "neutral" rating, Bank of America has a $56 price target for INTC stock.

Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences from the Massachusetts Institute of Technology and specializes in the psychological challenges of investing. He is a senior financial market reporter for Benzinga and has contributed financial market analysis to Motley Fool, Seeking Alpha and InvestorPlace. He is also the author of the book "Beating Wall Street With Common Sense," which focuses on the practical strategies he has used to outperform the stock market. You can follow him on Twitter @DugganSense, check out his latest content at tradingcommonsense.com or email him at wpd@tradingcommonsense.com.