Although the recent narrative suggests the stay-at home environment means good news for PC and laptop makers, Northland Securities’ Gus Richard makes the counter argument for Intel (INTC). The 5-star analyst forecasts declining fortunes this year for the CPU giant.
The Good
Things started well enough and Richard believes Intel has had a solid first quarter. At the turn of the year demand for x86 CPU outstripped supply and although shortages of mechanical parts and displays from China reflected a quarter-over-quarter decline of between 30% and 40% for OEM notebook builds, there was sufficient CPU inventory to offset the potential shortages. Additionally, data center demand has “remained robust.”
“Based on these expectations we expect the company to report at or above our estimates of $1.30 on $19B and consensus of $1.28 on $18.7B,” Richard said.
The Bad
The problem begins with Q2. Although it has been suggested the increasing number of employees working from home could provide an uptick in notebook sales, Richard argues the levels of unemployment will offset the increasing demand. And even for consumers able to afford a new notebook, he says, the purchase is far down a list of priorities of basic needs such as food, rent and utilities.
“Our back of the envelop calculation is that INTC’s Q2 revenue will be roughly $16.8B and $1.1B below consensus on weak PC demand. Intel may provide very wide guidance or not may not guide Q2 at all,” the analyst noted.
The Ugly
The real problems, though, will set in later in the year when “everything will be weak in 2H due to COVID-19.”
In the second half of 2020, the analyst expects PC demand to be down between 5% to 10% and adds that Intel’s 10nm server chip launch will be pushed back to very late CY20 or CY21.
Richard concluded, “At a minimum this will create pricing pressure on its existing server line as AMD releases is Milan 7nm+ TSMC based processor. We also expect that declining PC unit volume will create excess capacity at Intel pressuring margins.”
With all of the above taken into consideration, Richard maintains a Market Perform (i.e. Hold) on Intel and lowers the price target from $70 to $60. The new figure suggests upside of 10%. (To watch Richard’s track record, click here)
Consensus Verdict
The Street backs up Richard’s thesis. Intel’s Hold consensus rating is based on 12 Buys, 12 Holds and 6 Sell ratings. The upside potential comes in at 19%, should the average price target of $64.28, be met in the next 12 months. (See Intel stock analysis on TipRanks)
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