Dow Jones dragged down by Intel earnings disaster, mixed results from American Express
The Dow Jones Industrial Average (^ DJI 1.61%) was down about 0.3% as of 1:40 p.m. EDT Friday as uncertainty about possible stimulus legislation weighed on the stock market. Intel (INTC 3.03%) was by far the worst performer in the Dow after an earnings report that featured a sharp drop in demand from corporate and government clients.
Shares of American Express (AXP 3.03%) were also having a bad day after the credit card company’s mixed results failed to impress investors. While spending trends are improving, Amex’s total revenue was still down about 20%.
Intel hammered as pandemic hits data centers
giant flea Intel beat analysts’ expectations for third-quarter revenue and raised its guidance, but all was not well below the surface. Demand for data center chips from businesses and governments plummeted, and the PC business shifted heavily towards low-end products.
Overall data center revenue fell 7% to $5.9 billion. Cloud customer revenue grew 15%, but enterprise and government revenue fell 47%. Intel blamed the weak economy due to COVID-19 for the dramatic drop in demand. This shift in mix to cloud has resulted in a 15% drop in average selling prices.
PC-related revenue increased 1%, but growth was driven by strong demand for consumer and education PCs. Compared to the same period last year, average laptop chip selling prices were down 7%, even as laptop chip volume was up 25%.
Margins in both segments were hit hard. In the data center group, an operating margin of 32.2% was down from 48.8% in the prior year period. In the client computing group, operating margin contracted to 36.1% from 44.3% in the third quarter of last year.
The weak economy due to the pandemic is adding to Intel’s competitive pressures. Advanced micro-systems is go hand in hand with the business in the PC and server chip markets, and Nvidia recently agreed to acquire ARM Holdings in a deal that will almost certainly lead to more competition in the data center industry.
Intel shares were down about 10.9% early Friday afternoon. The stock has fallen about 20% so far this year.
American Express announces mixed results
Shares of American Express didn’t come under as much bombardment as Intel on Friday, but shares of the credit card giant suffered a sharp drop following a mixed third-quarter report compared to expectations. Total revenue fell 20% to $8.75 billion, ahead of analysts’ average estimate of $40 million, while earnings per share (EPS) of $1.30 missed expectations of $0.05. EPS was down 38% year over year.
The company has seen steady improvement in its overall spend volume since April, and it saw positive year-over-year growth in the quarter for non-travel and entertainment spend. Chargebacks and net charge-offs are at their lowest in several years, but American Express remains cautious about the impact of the pandemic on the economy going forward.
With a winter surge of COVID-19 gaining momentum in Europe and parts of the United States, it may take some time for the travel and entertainment industries to fully recover from the pandemic. In response, American Express is investing in other areas. The company acquired small business lender Kabbage in August, for example. But its third quarter results indicate how dependent it is on the type of spending that has been hit hardest by the pandemic.
Shares of American Express were down about 3.1% early Friday afternoon. The stock has lost around 18% of its value since the start of the year.