Intel Corporation INTC's first-quarter earnings report Thursday confirmed the weakness in semiconductor demand, with the chipmaker forecasting its first annual profit decline since 2015.
The Analysts
Morgan Stanley analyst Joseph Moore maintained an Overweight rating on Intel and nudged down the price target from $64 to $63.
Wells Fargo Securities analyst Aaron Rakers maintained a Market Perform rating and $60 price target.
MKM Partners analyst Ruben Roy maintained a Buy rating and $58 price target.
KeyBanc Capital Markets analyst Weston Twigg maintained a Sector Weight rating.
Morgan Stanley: CEO Transition, Tough Environment Driving Structural Change
Intel is not immune to tough semiconductor industry conditions but its business outlook offers hope for good relative outcomes, Moore said in a Friday note.
Notwithstanding the slight headline beats, Intel's data center and memory businesses remained weak, with China headwinds and customer inventory digestion adding to the softness, the analyst said of the first-quarter results.
The call with CEO Bob Swan highlighted positives including flexibility on memory strategy, additional opex savings from the smartphone baseband exit and updates on 10 nm milestones, Moore said.
"So the big picture is, the CEO transition combined with the tough environment for both demand and competition is driving the early stages of structural change."
Tigress Financial: Any Weakness Is A Buying Opportunity
Intel investors should buy into any potential weakness in the stock after the print, as data center demand will perk up in the long term and drive shareholder value, Tigress' Ivan Feinseth said.
With Intel's enterprise value-to-sales ratio at the lower level of the historical range, significant upside exists, he said.
The analyst attributed the reduced second-quarter guidance and below-consensus 2019 outlook to CEO Swan's conservative approach.
Wells Fargo Eyes Gross Margin Weakness, NAND Flash Strategy
The first-quarter gross margin of 58.3 percent marked the lowest since the second quarter of 2013, Rakers said in a Thursday note.
The 2019 gross margin guidance is also soft, hurt by the 10nm volume ramp and the negative impact from NAND flash price declines, the analyst said.
Yet Rakers expects improvements into the second half of 2019, as 10nm client solutions commence shipments with costs that have already been absorbed.
"We think Intel's comments on NAND Flash suggested that the company is definitely evaluating a potential strategic change, including potential supply partnerships."
MKM Says Longer-Term Positioning Is Positive
Intel's end market challenges are persisting, with stronger data center headwinds than expected, Roy said in a Friday note.
The company does expect a recovery for the business during the second half, especially from cloud customers, but the near-term commentary on continued inventory digestion and weakness in China is concerning, the analyst said.
MKM lowered its 2019 estimates to reflect near-term challenges, particularly in the data center group,
" ... We continue to believe INTC's diversification towards data centric businesses and continued focus on increasing operational efficiencies will ultimately position the company towards faster longer-term revenue growth at stronger profitability margins."
KeyBanc Sees Little Near-Term Upside
Intel's first-quarter results were good, but the significantly lowered guidance is indicative of challenges, Twigg said in a Thursday note. The ongoing 10nm delay is emphasizing Intel's "loss of core competitive advantage," he said.
The analyst also highlighted soft demand and increasing competition as concerns.
KeyBanc sees little near-term upside and lowered its 2019 estimates meaningfully.
"We remain Sector Weight due to exposure to a likely datacenter recovery in 2020 and reasonable valuation relative to peers," Twigg said.
The Price Action
Reacting to the results, Intel shares were last seen trading down 10.26 percent to $51.70 — their lowest level in more than a month.
Related Link: Intel Analysts Debate: Should Investors Buy The Dip?
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