As Intel reaches a year of construction, Wall Street fears the chip boom may be receding


Intel Corp executives have focused on increasing long-term capacity as semiconductors have been in short supply, but Wall Street is worried about what will happen when there are no more shortages.

Intel INTC,
-2.22%
is expected to report first-quarter results Thursday after markets close, following a quarter where the chipmaker’s build plans included acquisitions. In mid-February, Intel announced a $5.4 billion bid to buy Israel-based chipmaker Tower Semiconductor Ltd. billion for sites in Arizona. Intel has also acquired Israeli cloud optimization software company Granulate Cloud Solutions for an undisclosed amount, with a report citing an estimate of approximately $650 million.

This all comes a year after CEO Pat Gelsinger first announced his plans for an aggressive build since taking over as Intel helm. At Intel’s investor meeting earlier this year, Gelsinger laid out his view with an outlook above Wall Street estimates at the time and was met with skepticism from analysts. Intel also expects its weakened margins to recover starting around 2025 as the company continues to recover.

Wall Street has never really been on board with Intel’s plans to spend a lot of money on capacity building, and analysts are now worried about the potential end of the COVID-triggered chip shortage, which has propelled chipmakers to record profits. With the personal computer sales boom seemingly coming to an end, the continued outperformance of chips such as Intel’s central processing units, or CPUs, may also be coming to an end.

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Intel’s stock “now appears to have both tactical and structural issues,” wrote Bernstein analyst Stacy Rasgon, who rates Intel’s stock as an “underperformer” with a price target. of $40.

“In the short term, ‘peak PC’ concerns are now being progressively demonstrated in mainstream laptop versions, with a fix to CPU inventory now clearly apparent,” Rasgon said. “And structurally, the company’s recent analyst day hasn’t been incredibly well-received, as investors now have to face the reality of declining margins, no free cash flow and targets for future earnings that look challenging (if not far-fetched) with the recent server roadmap even more confusing the picture of the action in their most important market.”

What to look for

Earnings: Of the 36 analysts polled by FactSet, Intel is expected to post adjusted earnings of 78 cents per share on average, down from 82 cents per share the company reported a year ago. Intel expected 80 cents per share. Estimize, a software platform that crowdsources hedge fund executives, brokerages, buy-side analysts and others, calls for adjusted earnings of 85 cents per share.

Revenue: Wall Street expects revenue of $18.33 billion from Intel, according to 31 analysts polled by FactSet. That would be down from the $18.57 billion recorded in the prior year quarter, representing a seventh quarter of revenue decline from the prior year quarter. Intel expected revenue of $18.3 billion. Estimize forecasts revenue of $18.51 billion.

Analysts polled by FactSet expect client computing revenue to be $9.42 billion; data center revenue of $6.78 billion; non-volatile memory solutions revenue of $898.5 million; “Internet of Things”, or IoT, revenue of $1.01 billion; and Mobileye revenue of $415.8 million.

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Movement of stock: Speaking of a possible seventh straight quarter of revenue declines, even if Intel beats expectations – as it usually does – shares have fallen on the heels of the company’s past seven earnings reports. quarterly results.

In the quarter ending March, Intel stock was down 3.8%, while the Dow Jones Industrial Average DJIA,
-1.57%
— which counts Intel as a component — fell 4.6%, the S&P 500 SPX index,
-1.77%
fell 5%, the tech-heavy Nasdaq Composite Index COMP,
-2.78%
lost 9.1%, and the PHLX Semiconductor Index SOX,
-3.19%
fell 13.1%.

What analysts say

Susquehanna Financial analyst Christopher Rolland, who has a neutral rating and a price target of $52, echoed those concerns about the stocks, which he said could carry over into the second half.

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Rolland, however, said Intel may have “saving grace” as its audits indicate the company gained modest market share in desktops and laptops in the first quarter. Intel’s biggest rival when it comes to a market share battle is Advanced Micro Devices Inc. AMD,
-4.61%

“In summary, we expect a generally consistent quarter and guidance, but note the construction of medium-term risks as we move forward into 2022 given a backdrop of weakening PC demand and potential headwinds on margins,” Rolland said.

Citi Research analyst Christopher Danley, who has a neutral rating and a price target of $58, expects Intel to head for a fixed rate of $18.3 billion quarter to quarter. the other due to declining laptop sales.

“Our Neutral rating on Intel is driven by our expectation of consensus estimate cuts due to AMD’s share loss and microprocessor inventory correction in 2H22 as PC end-market demand returns to average” , Danley said.

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Of the 40 analysts who cover Intel, nine have a buy rating on the stock, 22 have a hold rating and nine have a sell rating, along with an average target price of $52.15, the data shows. of FactSet.

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