Now neck and neck with rival Nvidia for the title of largest U.S. semiconductor maker, Intel is set to report earnings after the closing bell Thursday.
Unlike much of the sector as tracked by the PHLX Semiconductor Index, which has gained 16.3% this year, Intel shares (ticker: INTC) have not performed well, advancing just 2% since the beginning of the year. There are a number of contributing factors, but investors continue to have questions about Intel’s next generation of manufacturing processes and how it can hold off rival Advanced Micro Devices (ticker: AMD) from continuing to take market share.
The 52-year old chip maker hasn’t been helped by the fact that several other semiconductor makers contained in the PHLX, such as Nvidia (NVDA), have seen significant benefits from the Covid-19 lockdowns ordered by many governments around the world.
Wall Street expects Intel to report second-quarter earnings of $1.11 a share on sales of $18.54 billion, though the company has previously told investors it expects earnings of $1.10 a share and sales of $18.5 billion. Intel reported adjusted earnings of $1.06 a share and sales of $16.51 billion in the year-ago period. Analysts’ revenue estimates have largely been flat since March, as have earnings estimates.
The sell side isn’t very excited about Intel at the moment. Of the 40 analysts that cover the stock, 19 rate it a Hold, six have placed a Sell rating, and the other 15 have a Buy. The average target price is $64.82, which implies an upside of 6.2%.
Investors will want to listen closely to the guidance offered by Intel executives for clues about what they are seeing or expecting in the personal computer market as the economy begins to reopen and people go back to work. Citi Research analyst Christopher Danely said in a conference call with clients that his team expects that the company’s seven-nanometer fabrication process will likely be delayed, in part because Intel has lost a lot of its engineering talent.
“We also think there’s probably some of the same issues that hurt them at 10 nanometers that are starting to pop up at seven nanometers,” Danely said. “So this is not good for the stock.”
Like several analysts and investors, Danely also says that his team thinks that Intel is in talks with Taiwan Semiconductor Manufacturing (TSM) for some aspects of its central processing unit manufacturing—which also doesn’t help the stock. Danely rates Intel the equivalent of Hold and has a $58 target price.
Data center revenue is expected to be a highlight for Intel, Jefferies analyst Mark Lipacis wrote in a client note this week. In a separate note, Lipacis wrote that second-quarter data center leasing volume was the highest since 2018, which is a leading indicator of data center processor chip sales. Lipacis rates Intel the equivalent of Hold with a $60 target price.
BMO Capital Markets analyst Ambrish Srivastava wrote in a note to clients that the investment community is largely expecting a slowdown of the data center and PC business, but his team’s estimates are below consensus for data centers and above for the segment of revenue that includes PCs. Srivastava rates Intel the equivalent of Hold with a $55 target price.
Write to Max A. Cherney at max.cherney@barrons.com
July 23, 2020 at 05:26AM
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Intel Reports Earnings Thursday. Here’s What to Expect. - Barron's
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