Wall Street Digests Intel's (INTC) Q3 Results and is Not Impressed
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Price: $21.46 +0.89%Rating Summary:
21 Buy, 27 Hold, 5 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 19 | Down: 27 | New: 29
Share of Intel (NASDAQ:
INTC) are
down 2.7 percent intra-day Wednesday following third quarter results and
lackluster guidance after the close. Analysts across Wall Street
have
digested the results, asked questions on the conference call and are now
commenting on the results.
Canaccord Genuity - "We reiterate our HOLD rating on shares of Intel as we
expect weak demand for PCs to continue to weigh on margins in the form of
depressed factory utilization and product mix. Sell-through of emerging Win8
devices is likely to see mixed results as untested form factors come to the
market, and we see these looming data points as weighing on sentiment through Q1
ahead of the launch of Haswell." Maintains Hold, cuts price target from $24 to
$20
Deutsche Bank - INTC reported 3Q12 results above the mid-pt of revised guidance but offered a cautious outlook for 4Q12 as macro headwinds persist. As a result, INTC is taking its inventory/GM medicine by cutting factory utilization to below 50%. While this aggressive action will hit GM hard in 4Q (-6ppts q/q), we believe it is a prudent strategy in an uncertain demand environment and sets the stage for margin recovery in 2013. Despite the more muted outlook and heavy investments in R&D/manufacturing, our ests are largely unchanged. We believe Intel is poised for a return to revenue growth in 2013." Maintain Buy, $28 price target.
Jefferies - "INTC beat recently lowered expectations, but forecasted 1% QQ revenue growth in 4Q and for 4Q gross margins to drop to 57.5%. We're sympathetic to the bull case, which is that INTC will see better orders from an inventory restock and better demand as Windows 8 launches, but we model gross margins to stay below 59% through 1Q, and believe there is time. Reiterate Hold, cuts price target from $29 to $24.
Goldman Sachs - "We maintain our Sell rating as Intel's stock is highly correlated with gross margin, and we believe that gross margins in 1H13 will decline into the low-to-mid 50% range. We believe this cycle is playing out like all the others, as limited capex of about $5 bn/year in 2007-2010 lead to tight supply and record margins. As we have long argued, the increase in capex to $10.8 bn in 2011 and $11.3 bn in 2012E would likely lead to a decline in gross margins. Intel's margins have declined in the six prior cycles that it raised capex more than 25%, with an average decline of more than 700 bp. 4Q margins based on guidance are down about 1000 bp from peak, and we expect an additional decline in 1H13 as wafers made at lower utilization should be sold in 1H, continued under-utilization charges are likely, Intel will have 14 nm start-up costs, and ASPs could be down. While lower utilization should enable lower capex (we estimate capex of $7-$8 bn in 2013E; see our note Capital reuse should allow Intel to cut capex but still get to 14nm) and eventually drive higher margins, Street estimates will likely need to be reset before we can be more positive on the stock. Recall our framework for upgrading deep cyclical stocks is: (1)
trough margins; (2) management capitulation; (3) some signs of life on the
horizon." Maintain Sell, lower price target from $21 to $20.
Oppenheimer - "INTC reported 3Q sales/EPS of $13.5B/$0.58, ahead of negatively pre-announced estimates and consensus $13.2B/$0.50. Fourth-quarter guidance of $13.6B (+1% Q/Q) is below Street's $13.7B and normal seasonality. In our view, mgmt's guidance for Q/Q growth in 4Q is less than conservative given well-documented PC woes, macro sluggishness, and recent (and ongoing) slowdown in Enterprise. Investors will also struggle to ignore the material disconnect between third-party PC data and INTC's bullish projections. DCG (the heretofore jewel in INTC's crown) softness and 630bp GM drop pile incremental negatives onto an already tough year. INTC shares could see pressure Wednesday (10/17) if investors deem mgmt's outlook too ambitious. Risks to 4Q outlook and lack of a credible wireless strategy keep us on the sidelines here." Maintain Perform rating.
Gabelli - "Sales in the enterprise server segment were softening and weakness in consumer PC remains challenging. PC billings in the month of September improved, driven by system production of the upcoming Windows 8... We believe that Intel still has sustainable growth drivers of enterprise PC refresh, data center/cloud computing, and higher
market penetration in growth markets." Maintain Buy rating.
Wedbush - "Despite softening in enterprise, Intel (INTC) printed Q3 results above its pre-announced guidance on improved PC-related billings towards the end of Q3. Midpoint of Q4 revenue guide slightly misses expectations with GM guidance impacted by lower demand and utilization charges. We maintain our NEUTRAL rating as we think upside to the stock from these levels may be limited until there is better visibility on the health of the overall macro environment, consumers’ appetite for Ultrabooks, and sell-through of Windows 8. Our $23 PT is based on about 11x our 2013 GAAP EPS estimate of $1.90 (from $1.85) plus $2.03 (from $2.63) cash per share." Maintain Neutral $23 price target.
MKM Partners - "We had expected an unpleasant call, and a negative tone around demand and the need to significantly lower factory utilization near-term certainly delivered on that. However, commentary on the ability to aggressively pull forward the 14nm process transition and potentially improve profitability in early 2013 is a clear positive. Realistically, the stock probably won’t work until we get better visibility into 2013 demand, but investors seem to equate weak macro + OEM disarray ahead of Win 8 to mean “the PC is dead” and INTC is going with it – with PCs adding tablet functionality faster than tablets are adding PC compute capability, and INTC likely to leverage its manufacturing and technology advantage to penetrate mobility, that seems structurally too pessimistic to us." Maintains Buy, $27 price target.
Wells Fargo - "Intel did better in the September quarter than the midpoint of its downwardly revised guidance given on September 7, but the December quarter sales outlook is far below normal seasonality and gross margin for December is expected to be sharply down. Capital spending for the full year 2012 is far below the original plan too. We think that Intel is reacting appropriately to the business weakness it is seeing by rapidly cutting capex and production, and reducing operating expenses. The midpoint of December quarter guidance represents 1% sequential growth following flattish sequential sales in the September quarter. The midpoint of December quarter gross margin guidance is for a drop of six percentage points sequentially to 57%. Intel is however cutting back production sharply, which is expected to result in an underutilization charge that will impact December quarter gross margin by about 4 percentage points and also reduce inventory by about $500 million." Maintains Overweight, cuts valuation range from $33-$39 to $28-$33.
Nomura - "Q3 earnings review, some positives, more negatives. Gross margin is weaker in Q4 at 57%, but underutilization charges going forward will be a tailwind, which should support GMs of 58-60% in 2013. Intel expects to burn channel inventory again in Q4. And a late Windows 8 launch (Oct 26th) could also help. We felt this was the first quarter Intel acknowledged that tablets and phones are eating into PCs, this is a significant headwind to growth. The net cash balance declined from $6.5bn to $3.4bn qoq. We think a lowered cash balance is weighing on Intel’s ability to make share repurchases, which came in at $1bn in Q3, versus $4bn in Q3-11.3Q12 results review. FY12E EPS from $2.07 to $2.1; FY13E EPS at $1.85." Maintains Reduce, $19 price target.
Williams Financial - While the company delivered Q3 results that were ahead of its negative pre-announcement in early September, the firm saw seasonal sell-through at about half the typical Q3 pace and expects much the same during the December quarter. With a myriad of factors impacting consumer and enterprise activity, the company is not only being cautious in its outlook, but also taking significant steps to reduce internal inventory by about $500 million in Q4, requiring fab loadings to fall below 50%. The anticipated soft market and the need to take a Haswell inventory reserve will pressure gross margins by about 600 basis points in Q4. Top line caution and gross margin deterioration puts Q4 sales and EPS well below our estimate and the prior Street consensus." Maintains Hold
Needham & Company - "We entered INTC's 3Q12 call quite cautious due to fears that weak demand for PCs would weigh on revenue and pressure gross margin. While INTC’s 3Q12 revenues of $13.5bn and gross margin of 63.3% beat revised guidance, we believe gross margin benefited from a $400MM inventory build in the quarter. 3Q12 EPS also benefited from a lower than expected tax rate. Given the weak PC demand environment and high inventory levels, Intel guided 4Q12 gross margin to 57%, well below our 62% estimates, to reflect significant excess capacity charges stemming from a reduction in fab loadings to less than 50%. With gross margin under pressure and global PC demand weak, we remain cautious on Intel and reiterate our Hold rating." Maintain Hold rating.
RBC Capital - "Intel reported a $0.09 EPS beat on better-than-expected sales and gross margins. Trends in PC Client group (RBCe -7% vs. -1% actual) were more positive than we had expected on improving billings in September (Win8 builds) which was offset by slower sales from the Data Center group (RBCe +7% vs. -5% actual) due to weaker than expected sales in the Enterprise 4-way segment. For the DecQ, the company is guiding revenues to $13.6bil at the mid-point, which is close to our/$13.66bil and slightly lower than Street/$13.78bil. Gross margins are expected to be 58% proforma, lower than our/62.3% and Street/61.4%, due to under-utilization charges and Haswell start-up costs." Maintains Market Perform, $24 price target.
UBS - "Intel 3Q12 results were ahead of expectations on most all accounts except its server processor business, which has been a key engine of growth. Intel attributed an unfavorable mix as its highend server processors sold into Enterprise were weak while the Cloud server market (+50% y/y) stayed strong. We remain positive on Intel based on our longer-term view and hence maintain our Buy rating, but we are incrementally more cautious and thus lower estimates and PT to $29.00 from $30.50. We believe uncertainties around the macro and market acceptance of Windows 8 devices are likely to keep the stock range-bound near-term." Maintains Buy, target cut from $30.50 to $29.
Barclays - "As widely expected, Intel offered a cautious outlook led by macro uncertainty, inventory drawdown ahead of Win8 launch, uncertainty as to success rate of new form factors (i.e. Ultrabooks, touch) and cannibalization from tablets given worldwide wallet shrink. On positive note, if trough 1Q13 GM is in fact ~55% despite current low 50's utilization rate, then this is a clear positive. On the negative side, the server business is showing signs of slowdown led by enterprise spend decline. From here, focus turns to end demand and capacity required for 2013/2014, which quite frankly is too early to call." Maintains Equalweight, $22 price target.
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have
digested the results, asked questions on the conference call and are now
commenting on the results.Canaccord Genuity - "We reiterate our HOLD rating on shares of Intel
as we
expect weak demand for PCs to continue to weigh on margins in the form of
depressed factory utilization and product mix. Sell-through of emerging Win8
devices is likely to see mixed results as untested form factors come to the
market, and we see these looming data points as weighing on sentiment through Q1
ahead of the launch of Haswell." Maintains Hold, cuts price target from $24 to
$20Deutsche Bank - INTC reported 3Q12 results above the mid-pt of revised guidance but offered a cautious outlook for 4Q12 as macro headwinds persist. As a result, INTC is taking its inventory/GM medicine by cutting factory utilization to below 50%. While this aggressive action will hit GM hard in 4Q (-6ppts q/q), we believe it is a prudent strategy in an uncertain demand environment and sets the stage for margin recovery in 2013. Despite the more muted outlook and heavy investments in R&D/manufacturing, our ests are largely unchanged. We believe Intel is poised for a return to revenue growth in 2013." Maintain Buy, $28 price target.
Jefferies - "INTC beat recently lowered expectations, but forecasted 1% QQ revenue growth in 4Q and for 4Q gross margins to drop to 57.5%. We're sympathetic to the bull case, which is that INTC will see better orders from an inventory restock and better demand as Windows 8 launches, but we model gross margins to stay below 59% through 1Q, and believe there is time. Reiterate Hold, cuts price target from $29 to $24.
Goldman Sachs - "We maintain our Sell rating as Intel's stock is highly correlated with gross margin, and we believe that gross margins in 1H13 will decline into the low-to-mid 50% range. We believe this cycle is playing out like all the others, as limited capex of about $5 bn/year in 2007-2010 lead to tight supply and record margins. As we have long argued, the increase in capex to $10.8 bn in 2011 and $11.3 bn in 2012E would likely lead to a decline in gross margins. Intel's margins have declined in the six prior cycles that it raised capex more than 25%, with an average decline of more than 700 bp. 4Q margins based on guidance are down about 1000 bp from peak, and we expect an additional decline in 1H13 as wafers made at lower utilization should be sold in 1H, continued under-utilization charges are likely, Intel will have 14 nm start-up costs, and ASPs could be down. While lower utilization should enable lower capex (we estimate capex of $7-$8 bn in 2013E; see our note Capital reuse should allow Intel to cut capex but still get to 14nm) and eventually drive higher margins, Street estimates will likely need to be reset before we can be more positive on the stock. Recall our framework for upgrading deep cyclical stocks
is: (1)
trough margins; (2) management capitulation; (3) some signs of life on the
horizon." Maintain Sell, lower price target from $21 to $20.Oppenheimer - "INTC reported 3Q sales/EPS of $13.5B/$0.58, ahead of negatively pre-announced estimates and consensus $13.2B/$0.50. Fourth-quarter guidance of $13.6B (+1% Q/Q) is below Street's $13.7B and normal seasonality. In our view, mgmt's guidance for Q/Q growth in 4Q is less than conservative given well-documented PC woes, macro sluggishness, and recent (and ongoing) slowdown in Enterprise. Investors will also struggle to ignore the material disconnect between third-party PC data and INTC's bullish projections. DCG (the heretofore jewel in INTC's crown) softness and 630bp GM drop pile incremental negatives onto an already tough year. INTC shares could see pressure Wednesday (10/17) if investors deem mgmt's outlook too ambitious. Risks to 4Q outlook and lack of a credible wireless strategy keep us on the sidelines here." Maintain Perform
rating.Gabelli - "Sales in the enterprise server segment were softening and weakness in consumer PC remains challenging. PC billings in the month of September improved, driven by system production of the upcoming Windows 8... We believe that Intel still has sustainable growth drivers of enterprise PC refresh, data center/cloud computing
, and higher
market penetration in growth markets." Maintain Buy rating.Wedbush - "Despite softening in enterprise, Intel (INTC) printed Q3 results above its pre-announced guidance on improved PC-related billings towards the end of Q3. Midpoint of Q4 revenue guide slightly misses expectations with GM guidance impacted by lower demand and utilization charges. We maintain our NEUTRAL rating as we think upside to the stock from these levels may be limited until there is better visibility on the health of the overall macro environment, consumers’ appetite for Ultrabooks, and sell-through of Windows 8. Our $23 PT is based on about 11x our 2013 GAAP EPS estimate of $1.90 (from $1.85) plus $2.03 (from $2.63) cash per share." Maintain Neutral $23 price target.
MKM Partners - "We had expected an unpleasant call, and a negative tone around demand and the need to significantly lower factory utilization near-term certainly delivered on that. However, commentary on the ability to aggressively pull forward the 14nm process transition and potentially improve profitability in early 2013 is a clear positive. Realistically, the stock probably won’t work until we get better visibility into 2013 demand, but investors seem to equate weak macro + OEM disarray ahead of Win 8 to mean “the PC is dead” and INTC is going with it – with PCs adding tablet functionality faster than tablets are adding PC compute capability, and INTC likely to leverage its manufacturing and technology advantage to penetrate mobility, that seems structurally too pessimistic to us." Maintains Buy, $27 price target.
Wells Fargo - "Intel did better in the September quarter than the midpoint of its downwardly revised guidance given on September 7, but the December quarter sales outlook is far below normal seasonality and gross margin for December is expected to be sharply down. Capital spending for the full year 2012 is far below the original plan too. We think that Intel is reacting appropriately to the business weakness it is seeing by rapidly cutting capex and production, and reducing operating expenses. The midpoint of December quarter guidance represents 1% sequential growth following flattish sequential sales in the September quarter. The midpoint of December quarter gross margin guidance is for a drop of six percentage points sequentially to 57%. Intel is however cutting back production sharply, which is expected to result in an underutilization charge that will impact December quarter gross margin by about 4 percentage points and also reduce inventory by about $500 million." Maintains Overweight, cuts valuation range from $33-$39 to $28-$33.
Nomura - "Q3 earnings review, some positives, more negatives. Gross margin is weaker in Q4 at 57%, but underutilization charges going forward will be a tailwind, which should support GMs of 58-60% in 2013. Intel expects to burn channel inventory again in Q4. And a late Windows 8 launch (Oct 26th) could also help. We felt this was the first quarter Intel acknowledged that tablets and phones are eating into PCs, this is a significant headwind to growth. The net cash balance declined from $6.5bn to $3.4bn qoq. We think a lowered cash balance is weighing on Intel’s ability to make share repurchases, which came in at $1bn in Q3, versus $4bn in Q3-11.3Q12 results review. FY12E EPS from $2.07 to $2.1; FY13E EPS at $1.85." Maintains Reduce, $19 price target.
Williams Financial - While the company delivered Q3 results that were ahead of its negative pre-announcement in early September, the firm saw seasonal sell-through at about half the typical Q3 pace and expects much the same during the December quarter. With a myriad of factors impacting consumer and enterprise activity, the company is not only being cautious in its outlook, but also taking significant steps to reduce internal inventory by about $500 million in Q4, requiring fab loadings to fall below 50%. The anticipated soft market and the need to take a Haswell inventory reserve will pressure gross margins by about 600 basis points in Q4. Top line caution and gross margin deterioration puts Q4 sales and EPS well below our estimate and the prior Street consensus." Maintains Hold
Needham & Company - "We entered INTC's 3Q12 call quite cautious due to fears that weak demand for PCs would weigh on revenue and pressure gross margin. While INTC’s 3Q12 revenues of $13.5bn and gross margin of 63.3% beat revised guidance, we believe gross margin benefited from a $400MM inventory build in the quarter. 3Q12 EPS also benefited from a lower than expected tax rate. Given the weak PC demand environment and high inventory levels, Intel guided 4Q12 gross margin to 57%, well below our 62% estimates, to reflect significant excess capacity charges stemming from a reduction in fab loadings to less than 50%. With gross margin under pressure and global PC demand weak, we remain cautious on Intel and reiterate our Hold rating." Maintain Hold rating.
RBC Capital - "Intel reported a $0.09 EPS beat on better-than-expected sales and gross margins. Trends in PC Client group (RBCe -7% vs. -1% actual) were more positive than we had expected on improving billings in September (Win8 builds) which was offset by slower sales from the Data Center group (RBCe +7% vs. -5% actual) due to weaker than expected sales in the Enterprise 4-way segment. For the DecQ, the company is guiding revenues to $13.6bil at the mid-point, which is close to our/$13.66bil and slightly lower than Street/$13.78bil. Gross margins are expected to be 58% proforma, lower than our/62.3% and Street/61.4%, due to under-utilization charges and Haswell start-up costs." Maintains Market Perform, $24 price target.
UBS - "Intel 3Q12 results were ahead of expectations on most all accounts except its server processor business, which has been a key engine of growth. Intel attributed an unfavorable mix as its highend server processors sold into Enterprise were weak while the Cloud server market (+50% y/y) stayed strong. We remain positive on Intel based on our longer-term view and hence maintain our Buy rating, but we are incrementally more cautious and thus lower estimates and PT to $29.00 from $30.50. We believe uncertainties around the macro and market acceptance of Windows 8 devices are likely to keep the stock range-bound near-term." Maintains Buy, target cut from $30.50 to $29.
Barclays - "As widely expected, Intel offered a cautious outlook led by macro uncertainty, inventory drawdown ahead of Win8 launch, uncertainty as to success rate of new form factors (i.e. Ultrabooks, touch) and cannibalization from tablets given worldwide wallet shrink. On positive note, if trough 1Q13 GM is in fact ~55% despite current low 50's utilization rate, then this is a clear positive. On the negative side, the server business is showing signs of slowdown led by enterprise spend decline. From here, focus turns to end demand and capacity required for 2013/2014, which quite frankly is too early to call." Maintains Equalweight, $22 price target.
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