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Intel on Track to Report Record Earnings in Fiscal 2018

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Fiscal 2018 revenue guidance

The world is moving toward the data economy, and Intel (INTC) is at the center of this trend. In the data economy, everything would be connected to the Internet through a 5G (fifth generation) network, and there would be automation at every level. Intel is investing in the four fast-growing markets of 5G, AI, IoT, and autonomous vehicles.

Intel has partnered with several Chinese companies. It has partnered with China’s Internet giant Baidu (BIDU) to set up an AI and 5G innovation lab focused on converged edge and cloud services. Intel is working with China’s e-commerce giant Alibaba (BABA) on various AI applications from cloud to edge.

The early adoption of these technologies is slowly reflecting in Intel’s earnings. Intel has raised its fiscal 2018 revenue guidance three times in the last six months—from $65.0 billion to $67.5 billion and again to $69.5 billion, representing YoY (year-over-year) growth of 10.7%.

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This $4.5 billion increase in guidance comes as cloud companies and enterprises boost their spending in information technology infrastructure, which would prepare them for the data economy. Intel expects its data center revenues to grow ~20.0% in fiscal 2018, up from its previous guidance of the high teens.

Fiscal 2018 profit guidance

Along with its revenue guidance, Intel also raised its fiscal 2018 profit guidance. It expects its non-GAAP operating margin to increase from 31.0% in fiscal 2017 to 32.0% in fiscal 2018 as it reduces its operating expense and increases its revenues.

Intel expects to reduce its fiscal 2018 operating expense ratio to 30.0% from 32.6% in fiscal 2017. It also raised its fiscal 2018 EPS guidance by $0.30 to $4.15, representing YoY growth of 20.0%.

While all other profit margins are growing upward, the gross margin implied from this guidance comes in at 59.0%, which is lower than the fiscal 2017 gross margin of 63.8%. Next, we’ll see what is causing the company’s gross margin to fall.

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