Intel faces “faster, nimbler fabless competitors” as it undergoes its own manufacturing challenges, a Bank of America analyst said.
Getty Images
Revenue and earnings beats for the third quarter weren’t enough to engender much good will toward Intel Corp., as the company deals with bigger problems related to its future.
Shares of the chip giant are off nearly 11% in Friday trading. This would mark the second straight quarter of double-digit post-earnings declines for Intel’s stock INTC, -10.89%, after a 16% plunge following its prior earnings report, when the company admitted that its next-generation of chips would be delayed and that it might look for a third party to make them.
Read: Intel stock plunges 10% after data-center sales drop more than expected
Intel didn’t offer too many answers about its business-transformation plan this time around, as management promised a larger discussion of the plan in January. But Bank of America analyst Vivek Arya argued that there’s “no easy fix” to the company’s manufacturing issues, especially given a heightened competitive environment in the chip industry. He downgraded Intel’s stock to underperform from neutral after the report.
Opinion: Will Intel’s struggles be AMD’s gains?
“We admire Intel’s incumbency, portfolio breadth, balance sheet/[free-cash flow] and strategic U.S.-based manufacturing,” he wrote. “However, the uncertainty of roadmap execution could continue to erode Intel’s 80% to 85% value share in [the] PC/data center markets and constrain EPS growth.”
Arya warned of “faster, nimbler fabless competitors such as Nvidia NVDA, +1.40%, AMD AMD, +2.88%, ARM-based suppliers and others that are able to take advantage of the foundry ecosystem,” and he wondered whether Intel’s size would pose a challenge when looking for foundry partners.
“[T]here is no clarity on when the decision will be made; whether Intel will partially or completely go fabless; and for how long,” he wrote. “It also isn’t clear if any foundry has either the spare capacity to make Intel’s multiple [tens of billions of dollars’ worth] of transistors, or the desire to help a competitor only for a small time frame while it improves its internal process and then leaves behind an empty fab.”
He lowered his price target to $45 from $60.
Jefferies analyst Mark Lipacis explored a similar theme in his note titled, “Would TSMC Take INTC…?” He concluded that it probably would, but only if Intel made some sacrifices.
“If TSMC TSM, -0.17% agreed to make Intel CPUs on its leading edge transistors as Intel worked to catch up to TSMC on transistors, TSMC may, in effect, have helped Intel to turn around, and take share from TSMC’s highest growth customers AMD and Nvidia,” he wrote. “For strategic purposes, we think TSMC would make Intel CPUs on its leading edge transistors only if Intel agreed to give up making leading edge transistors itself.”
Lipacis has a hold rating on Intel’s stock and he lowered his price target to $50 from $54.
Bernstein’s Stacy Rasgon reiterated his negative view of the stock, warning that next year could be worse for the company as it deals with tough comparisons in the PC business and “undoubtedly” loses share to AMD.
“The (only) bull case here continues to be ‘cheap hope,’” with the stock trading at “multi-year discounts to the industry and broader market,” Rasgon wrote. “But we do not believe the company’s situation has bottomed; to the contrary, they are likely just getting started.”
He has an underperform rating on the stock and reduced his price target to $40 from $45.
Don’t miss: Chipmaker ETFs fall on Intel’s worst day in 3 months
At least 15 analysts cut their price targets on Intel’s stock after the report, according to FactSet. Of the 40 analysts tracked by the service who cover Intel’s stock, 12 have buy ratings, 18 have hold ratings, and 10 have sell ratings, with an average price target of $54.64.
The stock has lost 20% over the past three months as the Dow Jones Industrial Average DJIA, -0.19% has slipped 0.9%.
Add Comment