BMO's Ambrish Srivastava Explains Intel Downgrade

While many on the Street are applauding Intel Corporation INTC for announcing its acquisition of Altera Corporation ALTR, BMO Capital’s Ambrish Srivastava downgraded Intel from Outperform to Market Perform on Tuesday citing the very same deal.

Srivastava was on CNBC to explain the reasoning behind the downgrade.

Opportunity Is Not As Big

"Those folks who follow our research know that we don’t hold anything back when we are positive, very positive," Srivastava said. "We have a lot of conviction on our calls. And so typically we don’t have a lot of Buy-rated names and Intel happened to be one of those, but we downgraded this morning and I’ll tell you what I don’t like. Kind of starting at the top, the opportunity, we don’t agree with Intel that the opportunity is as big as Intel is talking about."

Growth Not As High As Projected

He continued, "We don't concur with Intel on the growth rate for Altera. Remember this company has had a negative CAGR (compounded annual growth rate) of 2 percent for the last three years, in the midst of the biggest capital spending from carriers we have seen, especially in China."

Questions On The Balance Sheet

"Third thing is, we were disappointed on the details around how Intel hopes to generate return on the roughly $17 billion that they are putting down for this deal. And finally it also brings up questions on the balance sheet and we don’t have the details on how much debt Intel will be raising for this. It will be a mix of debt and cash, but part of the debt could be anywhere between $7-$12 billion, could have an impact potentially on the capital return via share buybacks," Srivastava concluded.