UBS Just Lowered Intel Estimates, But Why?

In a report published Wednesday, UBS analysts maintained their Buy rating on Intel Corporation (NASDAQ: INTC). The price target was lowered from $38.00 to $36.50. The analysts have also lowered their estimates for the company on expectations of a potential push out in PC demand and inventory reduction."We are lowering our C2Q earnings forecasts based on recent anecdotes from the Asia PC supply chain that suggests there could be some negative demand bias in the near term along with further inventory reduction in the PC channel ahead of Intel's new Skylake platform launch in C3Q," the analysts explained.The company's global peers have also expressed belief in lower near term demand ahead of the launch of Windows 10 in July 2015.The analysts, however, expect Intel's core gross margins to improve in 2H15, driven by the launch of the company's next generation PC platform, Skylake. "We note that Intel will also be moving its 10nm manufacturing process closer to production and 2H15 start-up costs could be an offset to expanding margins for mature 14nm yields and higher server chip sales mix," the analysts added.Although it might be too early to judge consumer reactions to Skylake, the analysts expect the new platform to speak consumer interest with its faster speed, longer battery life and wireless charging capabilities."We believe Intel's targeted $800M operating loss improvement for its smartphone and tablet processor business is on track given the ramp of the SoFIA 3G SoC… SoFIA volumes are expected to ramp to a meaningful percentage of the tablet processor mix in 2H15, and the benefit of integrated cellular data modem brings additional value and features to the end consumer," according to the UBS report.