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6 Reasons Why Goldman Sachs Is Bearish On Intel

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6 Reasons Why Goldman Sachs Is Bearish On Intel

Recent industry checks indicate a slowdown in PC builds in the second half of 2020, while Intel Corporation (NASDAQ: 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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