Intel Corp (INTC)

[Ixse]

PRU downgrades INTC. Sell. EPS of 86c. Target: $15

NTC: THREE GROSS MARGIN HEADWINDS - LOWERING ESTIMATES AGAIN

Current: Underweight
Target: $15.00

HIGHLIGHTS
• We think that Intel will face gross margin headwinds from three areas for the foreseeable future: 1) share loss to AMD, 2) startup costs associated with 45nm and Micron JV NAND memory ramp, and 3) potential inventory build. Our analyses indicate that:
• 1) further share loss to AMD could conservatively translate to 350 bps of gross margin pressure in 2006.
• 2) startup costs could create another 275 bps of gross margin pressure between Dec-05 and Dec-06.
• 3) a potential inventory build of $500-$900 million in the Mar-06q could result in 800 bps of gross margin pressure in 2006, similar to what the company saw in 2004.
• We are lowering our GAAP EPS estimates by $0.06 to $0.86 for 2006, and by $0.05 to $0.99 for 2007. We are materially below consensus, and think the Street forecasts are too high. We recommend investors sell INTC with a $15 price target.
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Bad Q1 followed by a bad Q2 is why I'm waiting at least till somewhere in Q2 to get into Intel.

Regards,

Rink