Seeing troubles continuing at
for years to come, Atlantic Equities analyst Ianjit Bhatti on Monday cut his rating on the microprocessor giant to Underweight from Neutral, trimming his price target to $45, from $63.
Bhatti writes in a research note that he had upgraded Intel (ticker: INTC) to Neutral following the appointment of Pat Gelsinger as CEO, “given the opportunity for strategic change.” But he does not believe the company’s recently unveiled revised IDM 2.0 manufacturing strategy provided any answers to the company’s market share losses to
Advanced Micro Devices (AMD).
He adds that first-quarter results showed accelerating market share declines, “with cost competition from Intel not having been effective to date and its customer relationships no longer a barrier to adoption.”
Bhatti asserts that the IDM 2.0 strategy, which among other things includes the buildout of new fab capacity and the establishment of a foundry business, “may be the best long-term strategy,” but that it will be a drag on profitability until at least 2025, “and does nothing to address continuing market share losses to AMD.”
He adds that Intel is seeing accelerating revenue declines from cloud customers, while AMD’s first-quarter cloud revenue doubled. “We believe that AMD is now the preferred [processor] supplier to most cloud customers for new workloads, with market share gains to accelerate in 2021,” he writes. And Bhatti adds that AMD’s market share in PC processors rose as well in the quarter, with Intel’s average selling price falling as it gives up the high-end of the market. He adds that Intel expects supply issues to impact its PC shipments in the 2021 second half, “while AMD has guided to improving supply.”
The analyst also says that Intel’s historic relationships to key customers are not going to protect the company from its ongoing issues. “Ultimately customers benefit from the erosion of Intel’s CPU hegemony, with a resurgent AMD giving buyers more negotiating power,” he writes. “Intel’s closest partners are adopting AMD’s CPUs, with Michael Dell having stated that while ‘Pat Gelsinger is a great friend … there are other microprocessors out there.’”
Meanwhile, Northland Securities analyst Gus Richard on Monday reiterated his Underperform rating and $42 target price on Intel shares. He thinks the company is fixable, but that it will take time—a lot of time.
“Intel is not dead, just severely wounded from self-inflicted injuries over the last couple of decades,” Richard writes. “It missed the mobile market, mis-executed getting into the foundry market, fallen behind in process technology, their design environment is a mess, and it damaged the balance sheet returning cash to shareholders,” he writes. “Rehab is going to take 3-to-5 years if they are lucky.” He says Intel can be fixed, but that “it is going to be painful for investors over the next few years.”
Intel was down 1.9% to $56.57 on Monday.
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