summary of various analysts
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Intel Rising: Bulls Look Past Soggy Forecast to PC ‘Stabilization,’ Server Strength
By Tiernan Ray
Shares of Intel (INTC) are up 20 cents, or 0.9%, at $23.59, after the company last night beat Q3 expectations but forecast this quarter’s results below consensus, while saying it believes the PC market, while still “tough,” may have hit bottom.
Most analysts today did not make much of CEO Brian Krzanich‘s disclosure, on the conference call following the report, that Intel will delay by one quarter its production ramp of new “Broadwell” desktop chips, till Q1, given some issues with getting proper yield from the production process.
The stock received one ratings change today, from Craig Ellis of B. Riley & Co., who raised his rating to Buy from Neutral, and raised his price target to $28.50 from $25, writing that the results confirmed his sense that the PC market is “stabilizing” and that the company’s position in sales of chips for servers and other data center products is encouraging:
With C14 Consensus EPS now down 12% since YE13, Sell Side “Buy” ratings at an 18-yr low, and signs of developed country PC stabilization emerging into C14, we think 9/19 ppt YTD under-performance to the SOX/S&P 500 overly discount PC negatives which may be turning and overlook clear mfg technology and DCG secular positives […] The guide is $13.70B (+1.6%) +/- $500MM with a 150 bps GM decline to 61.0% and flat opex of $4.70B. On a segment basis DGC should surge 15-20% as traditional US/ Europe enterprise finally recovers to compliment ongoing Cloud, HPC and Storage strength. Implicitly this means PC Client will fall 4.0% to 5.0% qq, even greater than the – 3.0% we forecast and far below the Street’s +2.0%. On lower volume and one- offs GM drop 100 bps qq but are flat qq, while tight opex is maintained for a $100M variance to our forecast. So, Street estimates will fall from $14.20B (+4.5%)/ $0.54 while we move from $13.51B (-1.2%)/$0.49 to $13.7B/$0.52.
Jefferies & Co.’s Mark Lipacis reiterates a Buy rating on the shares, and a $30 price target, writing that weakness in PCs doesn’t dim his view that Intel’s manufacturing edge in chip process technology will yet pay off:
Intel’s outlook for 8 Bay Trail-based Hybrid-PC/Tablet SKUs shipping for Black Friday are lower than we expected, but we chalk it up to a bumpy product transition. We didn’t hear anything to change our view that Intel’s manufacturing leadership would lead to share gains in low cost/power MPUs. We would use weakness as a buying opportunity.
MKM Partners’s Ada Menaker reiterates a Buy rating, and a $28 price target, writing that “Guidance was better than some investors may have feared,” and that “we continue to like catalysts in coming quarters – these include surging data center demand (helped by a budget flush in “classic” enterprise), a run at QCOM’s (NR, $68.17) exclusivity in wireless LTE modems (product shipping in 2H14), and an increasing competitive advantage as 14nm manufacturing ramps (INTC maintains a technology lead here despite a one-quarter push out).”
Menaker also highlights the momentum in the data center products group, which casts in stark relief the weakness in PCs:
We note an acceleration of Data center growth expected in Q4 (expected above Q3's 12% Y/Y increase) given a recovery in “classic” enterprise due to an IT budget flush as well as ongoing strength in large data centers. Investors should increasingly focus on fundamentals in DCG, as 22% of Q3 sales continues to increase on outpeformance. Management commentary implies continued weakness in PCs. Commentary around DCG growth expectations (approaching double digit Y/Y growth) implies continued declines in the PC group – we now model a 4.8% decline in 2013, followed by an additional 1.8% in 2014. While management remains excited at the range of new products in the marketplace, we believe there continues to be PC device fatigue due to competing products (tablets, game consoles) and little enthusiasm for touch-enabled ultrabooks (despite the cost added for touch declining to $50). We also note that a one-quarter pushout of Broadwell implies that little product may be available for next year’s back- to-school shopping season – our PC Client estimates thus move lower.
The bears today are still rather skeptical that new “Haswell” processors and “Baytrail” chips will pick up the company’s standing in mobile devices.
UBS‘s Stephen Chin today reiterates a Neutral rating, while raising his price target to $24 from $22.50, writing,
Intel believes PC demand in mature markets (U.S. and Western Europe) have bottomed and momentum in new 2-in-1 PCs using its Haswell chip priced sub-$349 and new BayTrail chips priced sub- $299 will be a key driver for the stock in 2014 where we still lack conviction.
Canaccord Genuity‘s Bobby Burleson reiterates a Hold rating, and a $20 price target, writing “the consumer PC market has not reached a bottom and is likely to see escalating cannibalization with the ramp of iPad 5 and competition from low cost tablets in emerging markets.”
“We see the US government shutdown as an additional risk to Q4 guidance, and note that it has recently been added to Intel’s statement of risks.”
