Hear That? It's The 'Sound Of Better Margins,' Needham Upgrades Intel To Buy

In a report published Thursday, Needham analyst N. Quinn Bolton upgraded the rating on

from Hold to Buy, with a price target of $37. The company reports its Q2 results and guided to 3Q above the consensus forecasts, "much better than feared." "While PC demand remains weak and is expected to remain so for the remainder of 2015, DCG, IoT and NAND all posted strong Y/Y growth. Management noted these growth businesses now represent over 70 percent of the company's operating profit," analyst Bolton reported. The company also announced formally the launch of its third 14nm architecture, Kaby Lake, in 2H16, along with a delay in the 10nm Cannonlake ramp to 2H17. The delay is likely to reduce capex intensity, which the analyst believes would benefit gross margins. "We believe these factors will drive improving sentiment around INTC shares, which we feel has become unfairly bearish," the Needham report said. Intel announced its revenue and EPS for 2Q above the consensus and the estimates, while guiding to higher than expected results for 3Q and reaffirming expectations of DCG revenue growing in the mid-teens percentage, year on year, in 2015. "INTC acknowledged softness in the enterprise segment, but this was more than offset by strength in Cloud, Storage, and Networking (especially NFV)," analyst Bolton stated, adding that the management believes that the weak macro environment has been driving enterprises to move to the cloud.