Intel Price Target Raised To $35, Citi Cheers iPhone 7 Win

While channel checks indicate improved PC demand, Intel Corporation INTC has also won iPhone 7 business from Apple Inc. AAPL, Citi’s Christopher Danely said in a report. He maintained a Neutral rating for Intel, while raising the price target from $31 to $35.

The EPS estimates for 2016 and 2017 have been raised from $2.35 to $2.39 and from $2.51 to $2.52, respectively, to reflect better PC demand and the iPhone 7 design win. Danely mentioned, however, that the upside is “temporary” and that the Apple business had negative gross margins.

Improved PC Demand

Checks indicate an upturn in demand from the PC end market due to re-stocking. This market contributes roughly 55 percent of Intel’s revenue and 50 percent of EPS, Danely noted.

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iPhone Win

The analyst said Intel is likely to have won about 25 percent share of the iPhone 7, at the cost of QUALCOMM, Inc. QCOM. The ASP of $5.00 at best translates to roughly $150.0 million in 2016 revenue and $300.0 million in 2017 revenue.

Restructuring

“Intel announced a restructuring to lower opex by $750.0 million in 2016 and $1.4 billion by mid-2017. We believe Intel could achieve better-than-expected cost cuts,” Danely wrote.

Concerns

Intel’s data center business would likely miss the revenue guidance for 2016 of mid-teens year-over-year growth due to price pressure and lower units. “We are also concerned about Intel’s 94 days of inventory as every time Intel’s inventory has been above 90 days, its gross margins have declined at least 3%,” the analyst added.