Recent industry checks indicate a slowdown in PC builds in the second half of 2020, while Intel Corporation INTC is likely to continue losing share in the client and server CPU markets, according to Goldman Sachs.
The Intel Analyst: Goldman Sachs analyst Toshiya Hari downgraded Intel from Neutral to Sell and reduced the price target from $65 to $54.
The Intel Thesis: Hari named six reasons for the bearish turn in a Monday downgrade note. (See his track record here.)
- PC demand set to weaken: Strength in the first half of 2020 was driven by employees moving to a work-from-home environment and PC purchases to meet online learning needs for children, the analyst said. This strength does not represent a fundamental change in the market’s long-term growth profile, Hari said, adding that PC demand and notebook CPU shipments may decline over the coming quarters.
- Weak enterprise spending: Enterprise & Government, within Intel’s Data Center Group, could come under pressure over the next few quarters as a strained economy forces Enterprise customers to spend more prudently, the analyst said.
- Market share still headed south: Competitive headwinds are likely to persist as peers gain momentum in the client and server end markets, he said.
- Capital intensity to stay elevated: As the manufacturing process grows in complexity, elevated capital expenditures will continue to weigh on gross margins, Hari said.
- Rate of opex efficiency gains to slow: While management has already executed significant cost cuts, Intel will need to invest to defend share in its traditional markets and compete in non-traditional markets, the analyst said.
- Memory pricing to revert lower: Recent industry checks indicate a decline in memory pricing in the second half and in 2021 given the uncertain demand environment, according to Goldman Sachs.
INTC Price Action: Intel shares were trading 0.31% higher at $59.31 at the time of publication Monday.
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