Summit Still Buying Intel, But iPad Fears Hurt Its PC Market

Summit Research’s Srini Sundararajan maintained a Buy rating for Intel Corporation INTC, while reducing the price target to $38. The analyst mentioned that the company’s performance in both 1Q and 2Q may be impacted by the dreadful performance of Taiwanese PC ODMs [notebook, desktop/motherboard] in January and a “so-so stabilized” performance in February.

Apple Inc. AAPL has recently launched a smaller-sized iPad Pro, and this may incrementally eat into PC sales. “Mostly the effect of the PC weakness will be on the Client computing group accounting for 60% of the revenues,” analyst Srini Sundararajan wrote.

Preannouncement Unlikely

Intel had guided to revenue of $14.1B +/- $0.5B, GAAP gross margin of 58 percent and non-GAAP gross margin on 62 percent. This suggests an EPS of $0.52, including an implied $400M from Altera.

“To a certain extent, we feel that Intel’s mentioning weakness in China was an accurate presaging of what was to come, so we do not think that Intel’s guidance is likely to be that far off from actual results,” Sundararajan commented. Hence, the company is unlikely to make a preannouncement.

Estimates Pruned With Caution

The revenue and EPS estimates for 1Q16 have been reduced from $14.3B to $13.8B and from $0.53 to $0.45, respectively, to reflect PC weakness. The revenue and EPS estimates for 2016 have been reduced from $59.9B to $57.9B and from $2.50 to $2.35, respectively.

“Inevitably, we think that the EPS estimate that we have is likely to be beaten by Intel but to be on the safe side we are using a higher SG&A expense as selling would have become harder in the quarter,” the analyst stated.