Why Lower Data Center Growth Targets Might Be In Intel's Best Interest

Morgan Stanley’s Joseph Moore believes Intel Corporation INTC reducing the full-year guidance for data center growth could prove to be a long-term positive, since a lower bar has helped relative valuation improve.

Moore maintains an Underweight rating on the company, while raising the price target from $34 to $35.

Guidance Cut

Despite a significant PC rebound in Q3, enterprise server weakness arose once again. The analyst believes that “the main issue with DCG growth is excessive mgmt expectations.” Therefore, setting the bar lower by lowering the full year guidance is a positive.

Following the in-line results for data center in Q3, management lowered the full-year data center guidance from double-digit growth to high-single-digit growth.

Related Link: Intel Delivers A Better Q3 But Guides For A Soft Q4

“That's not a big surprise, or it wouldn't be if the company hadn't been insisting that double digits would still happen after 2q,” Moore stated.

Expectations Were Too High

The analyst believes 15 percent growth targets are too high, and sustaining 10 percent growth might also be a challenge since migration to the cloud limits ASP expansion, offsetting the secular trends in enterprise.

The stock rose in aftermarket trade following this reduction, although it is up only 6 percent year-to-date as compared to the 28 percent rise in the average semiconductor stock.

Moore also pointed out that Intel’s EPS had risen multiple times during 2016, driven by restructuring initiatives and depreciation changes.

At last check, Intel was down 5.4 percent at $35.71.

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