Intel's Q4 Guidance Is Conservative

Brean Capital believes Intel Corporation INTC’s fourth quarter outlook is conservative after an inventory restocking in the PC supply chain led the chip giant to report better-than-expected third-quarter results.

Intel reported non-GAAP EPS of $0.80, higher than consensus’ $0.72 and generated revenue of $15.8 billion, also topping Street view of $15.6 billion.

Catalysts For A More Robust Q4

However, the company guided fourth quarter revenue of $15.7 billion + / - $500 million versus consensus of $15.8 billion. The mid-point of the revenue guide suggests a slight sequential decline versus normal seasonality, which is low single digits.

Related Link: Intel's Risk/Reward Is No Good, According To Citi

In addition, Intel expects a decline in non-GAAP gross margin due to a ramp in 3D NAND products in Dalian, China and higher factory start-up costs on 10nm CPU products.

“OPEX for the Dec-16Q is expected to increase slightly Q/Q and netting this out, this equates to an EPS guide of ~$0.73 vs. Street at $0.76,” analyst Mike Burton wrote in a note.

Burton believes Intel took a conservative approach with respect to its fourth-quarter guidance due to the new CFO appointment and difficulty in predicting quarterly revenues after a strong third quarter.

“Despite the revenue guidance that was below our and Street estimates, we are still constructive on Intel and we are sticking with our longer term view that Intel is positioned well from an OPEX point of view, as we believe the company has OPEX levers to be realized as its restructuring story plays out into 2017,” Burton highlighted.

In fact, Intel increased its restructuring and other charges forecast by $700 million.

As such, Burton reiterated his Buy rating and target price of $40 on the shares of Intel, which closed Tuesday’s trading at $37.75. In the pre-market hours, the stock fell 4.77 percent to $35.95.

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