First, Purley’s ramp is looking much stronger in the first quarter of 2018 compared to the back half of 2017, which could translate to upside for the Data Center Group. Asian contacts are indicating upbeat buzz surrounding server shipments that meaningfully fired up during the first quarter. Second, Rolland wagers that odds are Intel’s gross margin guide is too conservative, with the chip giant’s team having cut expectations down 3% year-over-year to 60.2% on growth in adjacencies and 10nm transition expenses. With rising average selling prices (ASPs) in the Purley ramp, Rolland is anticipating Intel can not only beat out its own guide but also could even surpass the Street’s 60.6% projection. Likewise, the scaled down full-year guide calling for 61.3% to 61.8% growth seems low to the analyst.
As such, anticipating strengths in server and Purley will help offset weakness in PCs, the analyst reiterates a Positive rating on INTC while boosting the price target from $56 to $62, which implies a close to 16% upside from current levels. (To watch Rolland’s track record, click here)
Overall, “Given our most recent conversations with the Asian supply chain, we believe DCG is likely to be a bright spot for Intel this quarter as better server units and ASPs could provide upside to Street estimates. We believe Purley ramped to 30% of server sales in 1Q18, is expected to ramp to 40% in 2Q18 and could exit the year at as much as 60%, providing a better than expected ASP tailwind for DCG. In PC, our ODM notebook and desktop checks during the quarter point to slightly softer than seasonal units (-18% QOQ in 1Q18). However, PC-SIGnals data points to slightly higher ASPs (up +3% QOQ), which could help mitigate unit softness. Better PC-SIGnals ASPs were driven by: 1) improved mix of core i7 in laptops, 2) ongoing ramp of Coffee Lake CPUs; 3) core i9 processor entering the channel; and 4) traditionally higher mix of enterprise PCs in the first quarter. We think the setup is OK into the print given the strength of the Purley ramp and conservative gross margin guidance,” Rolland contends.
TipRanks suggests cautious optimism hovering around INTC stock. Out of 28 analysts polled in the last 3 months, 18 are bullish on Intel stock, 7 remain sidelined, while 3 are bearish on the stock. With a return potential of just under 4%, the stock’s consensus target price stands at $55.58.