Shares of Intel (INTC) are down 46 cents, or 1.6%, at $28.01, after the company last night reported Q1 results ahead of expectations, and a Q2 revenue view that topped estimates, but projected Q2 gross margin that fell below what analysts’ were expecting as the company ramps up production on new chips and spends marketing dollars to support its push for “ultrabook” computers.
Intel did say gross margin should bounce back for the full year. The company said at least one�smartphone using its chip is set to be announced this week.
This morning, price targets and estimates are going up. Even Goldman Sach’s bearish James Covello raised his price target a buck to $23.
The bulls this morning emphasize that Q1 results were strong, especially in a market hit by disk-drive shortages, and that the company has things to look forward to, such as its “Ivy Bridge” processors and new ultrabooks coming to market.
The bears worry gross margin is headed definitively in the wrong direction, and they are not convinced Intel will find the kind of growth with ultrabooks that it is projecting.
Bullish!
Alex Gauna, JMP Securities: Reiterates a Market Outperform rating and a $33 price target. “We view this as a buying opportunity for the stock based on our view that the near-term headwinds of its server and mobile computing technology conversions will turn into strong top-line and gross margin tailwinds in 2H12 when these upgrade cycles ramp in earnest [�] Investors should look beyond the near-term margin and cash flow issues to the longer term strategic benefits of Intel investing in 22nm and soon 14nm process technology leadership. We see these benefits intersecting nicely with the Windows 8 upgrade cycle on deck for 2H12, and becoming even more apparent in 2013 when the next-gen Haswell architecture comes to market in Ultrabooks and Tablets.”
Glen Yeung, Citigroup: Reiterates a Buy rating and raises his price target to $35 from $29, writing that the company’s “manufacturing advantage” is “coming into view.” “While this [the lackluster Q2 gross margin outlook] is putting short-term pressure on the shares, if one believes Intel�s full-year GM guidance, full-year EPS will rise given higher 1H revenues and 2H GM. Meanwhile, with the strong performance of server, Intel�s �high-single digit� 2012 revenue growth guidance appears more achievable, leaving room for further EPS upside. With Intel already trading at a P/E & P/B discount to other large-cap tech stocks (10.8x/3.1x vs. 12.5x/5.0x) and other chip stocks (12.4x/2.5x), there is no change to our overall stance: we continue to view the shares favorably for 2H12 momentum (Win8, ultrabook, Ivy Bridge), and we have increased conviction that Intel�s manufacturing strength positions them well in mobile and possibly foundry. ”
Daniel Berenbaum, MKM Partners: Reiterates a Buy rating and a $33 price target. “The stock could move sideways near-term despite reiteration of full-year guidance (which, all else being equal, should drive estimates higher),” he writes. “Valuation is less of a discount than it was six months ago, and there are legitimate concerns around long-term earnings growth, but our sense is that consensus still underestimates the data center cycle and the strength of INTC�s manufacturing advantage, particularly against ARM-based competitors.”
Craig Ellis, Caris & Co.: Reiterates a Buy rating and a $34 price target. The Q2 view was “solid,” in his opinion, despite the gross margin “dip.” “NTC positives include: a) PC Client Ultrabook mojo at least partially offsetting to tablet cannibalization risk for 12.1%/7.8% C11/12E yy growth, b) double-digit C10-13 Data Center revenue growth on smartphone/tablet cloud demand with 50% operating margins adding $0.07-$0.10 of annual EPS growth from C12-14, c) tangible signs of Medfield mobile success at Lenovo, Motorola, ZTE and oth- ers, and d) the re-emergence of a mfg advantage with fast-ramping high-k metal gate tri-gate technology.”
Jonathan Pitzer, Credit Suisse: Reiterates an Outperform rating and a $35 price target. “While 2Q GM guide will impact near term trading, we would note that GM will have been ABOVE 60% in 12 of 12 quarters from 2010-2012E; vs. just 13 of 44 quarters from 1990-2000 and 3 of 36 quarters from 2001-2009; perhaps the clearest example of a structurally improved business model. In addition, Data Center Group Romley ramp accelerating in C2Q (+14% q/q and 50% of growth). Stock still cheap (9.3x 2013 EPS ex-Cash vs. group avg. of 14.0x, 9.6% CY13 FCF Yield), still under-owned and still perhaps the best structurally positioned company in Semis.”
Bearish!
Hans Mosesmann, Raymond James: Reiterates a Market Perform rating. “With the shares up 14% year-to-date vs. the SOX up 8%, we see better opportunity in more cyclically exposed names [�] While Intel remains bullish on end-market demand, both of its new processors (Ivy Bridge for consumer and Romley for servers), and the Ultrabook category of PCs, we believe the 2012 outlook for high-single-digit growth (while potentially more achievable) is still a tall order [�] Regarding the Win8 launch we believe share losses in the lower-end computing segments (Ultrabook/ ultrathin) will not be offset by traction in smartphones/tablets.”
James Covello, Goldman Sachs: Reiterates a Sell rating while raising his price target to $23 from $22. The Q1 results were “solid,” nevertheless, “Out-year Street EPS estimates will likely be flat to down after the call and the gross margin is beginning to deteriorate. We have long argued that Intel�s stock is highly correlated with the gross margin, which we acknowledge exceeded our expectations this cycle. We attribute the strength primarily to the fact that Intel kept capex flat at about $5 bn from 2007-2010. However, this supply discipline has changed, in our view, with Intel spending $10.8 bn in 2011 capex and planning to invest $12.5 bn in 2012. We believe the roughly $400 mn qoq 2Q12 inventory build and below-Street 2Q12 gross margin guide.”
Christopher Danely, JP Morgan: Reiterates a Neutral rating on the shares while raising his price target a buck to $26. “We view Intel�s C12 guidance as aggressive as the company expects QoQ revenue growth in 2H12 to be above normal seasonality. We believe there is negative leverage in Intel�s model if the company doesn�t achieve its sales forecasts since spending and utilization rates are elevated.”
Craig Berger, FBR Capital: reiterates a Market Perform rating and raises his price target a buck to $30. He sees gross margin recovery in Q4, when yields are better, but he’d rather bet on Qualcomm (QCOM): “In total, revenue upside is largely offsetting gross margin downside, with Intel’s execution and product initiatives on track. Stepping back, Intel has sustainable advantages in manufacturing, its product roadmaps, process leadership, technology leadership (high-K, 3D transistors), and scale. However, tablets and smartphones are tempering growth in Intel’s core business, and with some WoA risks. Thus, we highlight QCOM as our preferred large- cap semiconductor pick, with more fundamental tailwinds in the shift to 3G and 4G smartphones.”
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