Analyst Raises Red Flags on Intel (INTC) Ahead of 1Q18 Earnings

Rosenblatt's Hans Mosesmman offers a slew of reasons he continues to bet against INTC ahead of its quarterly print.

Ahead of Intel Corporation’s (NASDAQ:INTC) first quarter print of 2018 due April 26th, Rosenblatt analyst Hans Mosesmann may believe the company’s Datacenter Group (DCG) will showcase strength in China- but that is not enough to sway the analyst away from a more bearish, bigger picture.

After all, this is a year the analyst sees the chip giant’s PC unit growth underperforming the market- a market for that matter that already will be quite low in year-over-year growth, reaching at most to mid-single digits. As fierce rivalry swirls left and right between AMD and Nvidia, Mosesmann vouches for the bears on Intel’s less-than-ideal market opportunity at play.

Therefore, in a quarterly earnings preview, the analyst reiterates a Sell rating on INTC without listing a price target. (To watch Mosesmann’s track record, click here)

Mosesmann anticipates “hyperscale and possible pull-ins due to possible trade war” to prove advantageous for Intel’s DCG gains in China, something that should “offset mixed q/q PC data points that suggest weaker seasonality and continued modest share losses in desktops.” However, the bear likewise adds, “We believe the setup into the print already includes a beat and raise dynamic.”

“We expect 2Q18 guide to support flat to possibly up sequential sales growth on continued hyperscale server strength with wildcards being the PC market in general, Apple […] modem shipments, and how aggressive the NAND Flash memory ramp will be,” continues the analyst.

Average selling prices (ASPs) for Intel in the PC market do not have Mosesmann encouraged, as he wagers they will not rise in 2018. Meanwhile, even though the company is unleashing its volume 8th generation CPUs and at a “very good value (price) proposition for customers,” this comes at its own price: “the expense of margins given the continued use of 14nm (bigger die size).” As AMD’s market share gains are “quite likely” to keep growing through this year and next on back of desktop momentum’s evolution to notebook and server gains, the analyst stands wary surveying Intel amid such competition.

The analyst sees “real and sustainable threats from both AMD (CPU share gains) and Nvidia […] (GPU acceleration reduces CPU use)” along with process technology challenges and “very mixed success” in terms of adjacencies to acquisitions. In terms of artificial intelligence (AI) and its disruption in the computing universe, the bearish warning signal is clear here to Mosesmann: “we continue to believe that the space is a net threat to Intel’s CPU incumbency and Intel’s longer-term business model. Intel no longer controls the direction of computing and as such, […] is now a fast follower in compute acceleration in a world where the value of the x86 CPU is in secular decline.”

Ultimately, as Nvidia’s mounting success in the datacenter arena spells out cutthroat trouble for Intel, and based on Intel’s track record, the stock underclasses in dipping gross margin backdrops (which Mosesmann predicts for this year), the analyst continues to sound the alarm on this chip giant ahead of its earnings show.

TipRanks showcases the chip giant as one with sentiment that leans toward the bulls, but not with resounding confidence. Out of 28 analysts polled in the last 3 months, 18 are bullish on Intel stock, 7 remain sidelined, while are 3 bearish on the stock. Notably, the 12-month average price target stands at $55.26, marking a 4% upside potential from where the stock is currently trading.

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