Intel Q2 Earnings Beat to Fuel Semiconductor ETFs - ETF News And Commentary

Intel

, the world's largest chipmaker, reported solid Q2 results after the market closed yesterday. The company surpassed our estimates on both revenues and earnings and gave an inspiring third quarter revenue outlook.

In fact, Intel's 10% positive earnings surprise is remarkable amid reports of falling PC shipments and Microsoft issuing Windows 10 upgrades free. This has spread strong confidence in the company's growth for the coming months (read:

).

Earnings of 55 cents per share came in a nickel higher than the Zacks Consensus Estimate but were flat with the year-ago quarter. Though revenues dropped 5% year over year to $13.19 billion, they were well ahead of our estimate of $13.04 billion. Better-than-expected results were credited to strong growth in memory, data centers and the Internet of Things that more than offset sluggish PC sales. The three businesses accounted for 40% of total revenues and 70% of operating profit in the second quarter.

Intel is confident of its future growth strategies and is seeking new avenues for growth. It expects to launch Skylake, Microsoft's Windows 10 and new OEM systems in the second half of the year that will boost its revenue base. Further, the company is in the process of buying fellow chipmaker Altera Corp

for $16.7 billion, or $54 per share, as announced last month (read:

).

The acquisition of Altera would open up opportunities for Intel in the programmable computer chip market used in cellular networks, cars, wireless radios and other products. Since about two-thirds of Altera's revenues come from telecom, wireless, and military/aerospace industry, this will help Intel to diversify its revenue stream beyond the legacy computer markets. With this, Intel could expand into a number of markets like automotive, industrial and communications while bolstering its presence in data centers as well. The acquisition is expected to close in the next 6–9 months.

As a result, Intel expects revenues in the range of $13.8–$14.8 billion for the third quarter of 2015. The midpoint is well above the Zacks Consensus Estimate of $13.93 billion. Gross margin is expected to be around 63%. For 2015, revenues are expected to fall 1% year over year while gross margin is projected around 61.5%.

Following the earnings and revenue beat, INTC shares rose as much as 9.2% in after-market hours on elevated volume. This reflects bullishness for the company in the days ahead. This is particularly true as the stock had a solid industry Rank (in the top 42%) at the time of writing, as per the Zacks Industry Rank. Further, INTC has a Zacks Rank #3 (Hold) with flavors of both value and growth with Style Scores of ‘B' and ‘A', respectively (read:

).  

Investors seeking to tap the opportunity for the upcoming surge in INTC shares could consider the following ETFs. These funds have large allocation to the biggest semiconductor company and are poised to move higher with its rise in stock price in the coming days. All these ETFs have a Zacks ETF Rank of 3 or ‘Hold' rating with a High risk outlook.

This is easily the most popular and liquid ETF in the semiconductor space with AUM of $412.5 million and average daily volume of roughly 3.6 million shares. The fund provides concentrated exposure to 26 global securities by tracking the Market Vectors US Listed Semiconductor 25 Index. Intel occupies the top position with 19% of assets. While U.S. firms dominate the fund holdings at 69.4% of assets, Taiwan (15.5%), the Netherlands (10.5%) and United Kingdom (4.5%) take the remainder in terms of country exposure. The fund charges an expense ratio of 0.35%. The fund lost around 2% in the year-to-date timeframe.

This ETF follows the PHLX SOX Semiconductor Sector Index and offers exposure to 30 U.S. firms. The fund has amassed $413.4 million in its asset base and trades in volume of more than 332,000 shares a day. The product charges a higher fee of 47 bps a year from investors. Here, INTC takes the third spot at 7.62% of total assets. The fund lost over 2% in the year-to-date timeframe and currently has a Zacks Rank of 3 with a High risk outlook (see:

).

This fund tracks the Dynamic Semiconductor Intellidex Index, holding 30 U.S. securities in the basket. Intel makes up for 4.58% share in the basket. PSI, with AUM of $89.3 million, is often overlooked by investors and hence sees a lower average daily volume of about 46,000 shares. The expense ratio came in at 0.63%. The product is up about 2% so far this year.

Want the latest recommendations from Zacks Investment Research? Today, you can download

.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.