Rising competition weighed on analysts minds following Intel‘s dismal report after the bell Thursday. Wall Street largely believes the company’s sales shortfall is an Intel-specific problem and they remain bullish on the semiconductor industry as a whole.
Shares were down over 7 percent at the open after the company also gave weak guidance and missed on revenue and didn’t seem any closer to naming a permanent CEO.
Some analysts like J.P. Morgan lowered their price targets, while Susquehanna went further saying, “In short, we are downgrading shares of Intel to neutral on DCG (datacenter group) deceleration, building competitive risks, narrowing process technology leadership, macro concerns, and what we believe is now fair value for a company potentially struggling to grow earnings in 2019.
Needham analyst Quinn Bolton also downgraded the stock as he recommended clients, “moving to the sidelines as we monitor data center spending for signs of a recovery.”
Here’s what some of the others think:
“We are bullish on semis in part because consolidation is driving pricing power and higher margins, but we think the opposite will happen to Intel over the next 12-to-24 months… In the data center, Nvidia GPUs have quickly grown to 10% of Intel’s DCG, XLNX FPGAs are starting to gain traction, and we think AMD and ARM will hit their datacenter stride by EoY 2019… On the PC side, AMD appears to be gaining share in the high end, and we wouldn’t be surprised to see Apple introduce an MPU for its PC products… We project INTC’s EPS to decline in 2019… We think upside risk for INTC is mainly from AMD mis-execution and more aggressive OpExp management…”
“Remain at Buy on 2H recovery, reset bar China weakness and cloud capex deceleration finally caught-up with INTC late in 2018, driving a rare sales miss and sluggish 2019 outlook… While 2019 pf-EPS outlook of $4.60 is ahead of Street’s $4.53, it is below the $4.80 from our recent upgrade…. The critical Data Center Group (DCG) is now likely to grow only below 5% YoY vs. est. of 7-8% growth… We are disappointed, but remain at Buy since: 1) guidance could prove conservative, esp. ahead of a new CEO announcement, and given the 29% upward EPS revision we saw in 2018; 2) INTC’s +1% YoY sales outlook for 2019 is still better than all large-cap peers who are likely to see flat or declining organic sales; 3) INTC can still grow FCF 10%+ which is ahead of peers; and 4) PC demand relatively stable, and cloud/comms demand could pickup in 2H after the required capacity absorption n-t… We lower our estimates to $4.60/$5.05 for 2019/20, and PO to $57 from $60 on 17x EV/FCF which is consistent with large-cap peers (and implies a 12-13x P/E, inline with historical range). PT to $57 from $60”
“We increasingly find ourselves as the bulls in our Intel debates with investors… We don’t want to get carried away with that; we see 2018 as the cycle peak, and expect minimal growth between 2018 and 2020, and do expect AMD to make further inroads… The large opportunity is really somewhat binary on whether there is a more aggressive cost cutting effort from the new CEO… But even without that there should be some multiple expansion if the company can continue to earn $4+ while clearly demonstrating their ability to manage the business competitively… Our PT remains $55, sticking with a relatively undemanding 12x multiple (because of the earnings/cash flow gap – and note that closing that gap would offer opportunities for multiple expansion)…”
“…We expect 4Q revenue growth trends in the company’s DCG segment to be top of mind for investors post-the print, particularly following robust (i.e. 20%+) yoy growth during the first three quarters of 2018…..
Bottom line, we believe the rate of revenue growth the company has enjoyed over the past several quarters is likely to fade through 2019 as 1) comps naturally get tougher, 2) competition intensifies with AMD aiming to release EPYC 2 in mid-2019, 3) Enterprise (i.e. 1/3 of DCG revenue) growth normalizes, 4) cloud capex growth decelerates, and 5) mix normalizes down following the 14nm supply shortage… Importantly, we would note that a significant portion of the company’s full year outlook is predicated, in our view, on a back half recovery in DCG… While our post-call checks with the company indicated that this view is supported by both customer contacts and bottom-up workload growth analysis, we would note that visibility is limited – particularly 4 quarters out – in the datacenter end market, as evidenced by the fact that 4Q results came in below company expectations… As a result, we would await more concrete signs of a potential pickup in the datacenter business before baking in a more meaningful recovery to our estimates.”
“Intel’s 4Q18 revenue of $18.6 billion (up 9% Y/Y, down 4% Q/Q) was below guidance/consensus as Data Center Group (DCG) revenues and Intel’s modem business within Client Computing Group (CCG) decelerated in the quarter… 1Q19 revenue guidance (flattish Y/Y and down 14% Q/Q) was below consensus as demand weakness in data center (‘pause’ in cloud spending and weakness in China enterprise) and weak smartphone demand (Apple) is expected to continue in the quarter. Intel expects full 2019 revenue growth of 1%, below JPMe/consensus, and assumes a strong inflection of data center spending in 2H19… Although decelerating cloud spending is impacting near-term demand, as feared by many investors, we continue to expect double-digit % capex spending growth by hyperscalers for the full year and we expect Intel to benefit from wider adoption of Cascade Lake server CPUs in 2019… We also expect Intel to benefit from constructive client CPU demand with CPU shortages to abate in 1H19… In addition, Intel is making good progress with 10nm CPU yields and is on track for 2H19 product launch (Ice Lake/Lakefield CPU family for PC client) with further products to be launched in 2020 (10nm server CPU family in early 2020)… We continue to expect Intel’s overall competitiveness in client and data center markets to remain very strong in 2019… While investors may view Intel’s full year outlook (with strong 2H inflection) with skepticism, we believe Intel’s management team has exhibited a solid track record of under promising and over delivering in regard to financial performance targets.”
“With recent strong share performance (+17% over past 3-months vs. SOX at +9% and S&P at -0.5%), we think shares of Intel are justifiably coming under pressure given: (1) disappointing / below consensus 1Q19 / 2019 guide; expect investors to question Intel’s implied 2H2019 ramp to achieve the full year guidance at $71.5B / $4.60, (2) GM% declines looking into 2019 as the company realizes less upward pricing trends, weakening NSG GM%, increased modem mix, and the impact of increasing depreciation expenses as 10nm ramps begin to materialize (reminder: please see our capex vs. depreciation waterfall analysis)… (3) Decelerating Data Center Group (DCG) growth at +9% y/y in 4Q18 vs. +25.5% for 1Q18-3Q18 combined; Cloud growth slowing to +24% y/y vs. +50% in 3Q18 couple w/ China weakness.”
“Disappointing quarter and outlook: Intel 4Q18 revenue was $18.7 billion (down 3% QoQ), below our $19.5 billion estimate (up 2% QoQ) and Consensus of $19.0 billion due to softness in China, server chips, Apple smartphones, and memory. Gross margins decreased 427 basis points QoQ to 61.7%, below our 62.0% estimate due to lower revenue and mix. EPS of $1.17 was below our $1.25 estimate and Consensus of $1.22 due to lower sales and margins… Intel guided 1Q19 revenue to $16.0 billion (down 14% QoQ), below our previous $17.7 billion estimate (down 5% QoQ) due to weakness in server chips and memory… Intel guided 1Q19 EPS to $0.87, below our previous estimate of $0.94. PT to $50 from $54.”
“The tendency may be to call this a conservative reset, but the FY guide banks on a strong recovery in the 2H (requires DCG up double digits seq. on top of PC slowing and Ice Lake is not shipping until Holidays). Additionally, this weakness leads right into the teeth of tough competitive dynamics in 2020, which is the real story line and what we highlighted in our Q4 preview, “Buy the Second Cut? Bottom is Near but Coast is Not Clear, 1/17/19″. Net net, INTC has: 1) lost its performance advantage and is now fighting TSMC, a costly battle we believe they may lose, 2) DCG reset once again puts its overall growth rate into question, and 3) PC market is starting to decline again vs INTC flat guide.”
“Management blamed the shortfall on a slowdown in China, weaker modem demand, cloud customers absorbing capacity, and a weakening NAND environment… But versus our prior 1H19 estimate, Data Center is expected to drive the majority of the miss as management highlighted server inventory builds (enterprise) and “a period of consumption” by cloud customers… Additionally, we believe management’s full-year expectation for midsingle- digit YOY Data Centric growth implies an overly aggressive DCG reacceleration in 2H19… We question the reacceleration given: 1) tough comps YOY after one of the most significant server refresh cycles in the company’s history; 2) a lack of overly compelling new server features in 2019 (even with the ramp of Cascade Lake and later the Whitley platform); 3) some waiting on 10nm parts that may come in 2020; and 4) potential server share losses to AMD… While positives in the quarter include +23% QOQ FPGA growth (as Altera likely benefited on the 5G build) and continued reassurances that 10nm is on track for late 2019, these incrementally positive developments were overshadowed by the marked deterioration in server demand beginning in mid-4Q18… In short, we are downgrading shares of Intel to Neutral on DCG deceleration, building competitive risks, narrowing process technology leadership, macro concerns, and what we believe is now fair value for a company potentially struggling to grow earnings in 2019. Decreasing price target from $58 to $50 (14x FCF per share ’19E) on decelerating growth and building risks.”
Originally published at CNBC