Piper Jaffray not Impressed by Intel's Increased Capital Investment, Maintains Neutral

Earlier today, Piper Jaffray released a company note commenting on the increased capital investment by Intel Corporation

. Analysts believe the growth in PCs will not support Intel's growth in capacity or investment, thus maintaining the Neutral rating and a price target of $22.50. Intel is able to introduce a new process every other year because it is the largest semiconductor company and profitable. However, integration of the graphics processor may be the last CPU innovations needed for the next generation process. There is not much value left in a PC for Intel, all that left is cost reductions that will shrink the PC market. Smartphones on the other hand, still have plenty of room for innovation. Multiple processors will need to be integrated on a single chip in the future. Process technology leadership is a valuable asset, but Intel's dominance is dependent on its ability to satisfy the smartphone or tablet demand. As semiconductor demand shift from PCs to smartphones, Intel would be left with too much capacity going forward. Apple, the key catalyst for the shares, is re-allocating memory demand from Samsung to other vendors. PC demand would also likely to be lower in 2H11 and CY12, slowing Intel's capital spending next year. Although Intel is increasing its capital spending 96% YoY in CY11, the company could afford to spend more given its size and profitability, as competitors are more capital intense. Intel continues to build capacity as if its silicon demand will stay on target. This seems unlikely due to the analysis of the PC client market. If Intel could partner with the largest buyer of leading edge silicon Apple, then it would start impact the volume growth of the next generation process technology. The risks associated with INTC include: IT spending slowdown, shift to low-end CPUs, share loss in microprocessor, slowdown in PC demand and regulatory risks. At the time of posting, shares of INTC were trading at $22.86.