Intel's Restructuring Efforts Are A 'Bad Paint Job'

Intel Corporation INTC reported its 1Q16 earnings on April 19. Bernstein’s Stacy A. Rasgon maintained an Underperform rating for Intel, with a price target of $26, saying that the company is likely to significantly lower its Q2 and full-year guidance.

1Q Results

Intel reported its revenues broadly in-line with the recently lowered consensus. The company’s GAAP revenues came in at $13.7B, representing a sequential decline of about 8.1 percent, significantly short the original guidance of $14.1B. Non-GAAP revenue was $13.8B.

Intel reported an EPS beat, backed by higher gross margin, lower opex and a lower tax rate. Non-GAAP EPS came in at $0.54, 7 cents higher than the consensus of $0.47.

The company’s gross margin was at 62.7 percent, down ~160 bps sequentially, but higher than its prior guidance of 62.0 percent. Gross margins came under pressure during the quarter due to “lower platform volume, higher factory startup cost on 10nm, higher write-offs and miscellaneous,” analyst Stacy Rasgon said.

Looking Ahead

Rasgon expects the company to significantly lower its 2Q guidance well below current consensus expectations. Intel is also likely to lower its 2016 guidance.

Intel has massive restructuring plans within which it has proposed to eliminate about 12,000 employees by mid-2017, in an attempt to save ~$1.4B. The company expects to achieve 50 percent of the proposed workforce reduction in 2016, resulting in cost savings of ~$750M.

“While cost cuts may give optimistic investors something to hold onto for now, it is clear that the business fundamentals are worsening. Full-year guidance, even lowered, does not appear to be a slam dunk, requiring a significantly above-seasonal back-half,” the analyst wrote.