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Intel Corp. became the latest stay-home beneficiary to give an uninspiring forecast for the rest of the year, which is weighing on its shares Friday.
The company issued a lower-than-expected second-quarter profit projection as it transitions to its next-generation 10-nanometer manufacturing technology. Intel INTC, -1.76% also failed to instill much confidence in its sales outlook for the rest of the year.
Shares are down 4.9% in premarket trading.
See more: Intel stock sinks as boom in earnings is not expected to last
Susquehanna’s Christopher Rolland said that the company’s conservative tone about the remainder of the year served as bearish fodder, especially after Intel easily topped revenue expectations in the first quarter and gave an upbeat second-quarter sales forecast.
“[I]nvestors will question… ‘how precipitous a decline is now expected in 2H to compel management to remove their (easily beatable) full-year guidance?’ Rolland wrote. “Similar to recent quarters under CEO Bob Swan, it is difficult to discern whether this is management’s true expectation for a sharp slowdown or this is Swan’s (now) signature conservatism.”
The analyst rates the stock at neutral with a $56 target price.
Opinion: Intel fails to clear the clouds on its forecast
The commentary made data-center concerns seem “suddenly more realistic” as the company “reiterated some modest concern about 2H data-center weakness that aligns with other, very recent, public and proprietary data points,” in the view of SunTrust Robinson Humphrey analyst William Stein.
While he expects this area of the business to still see “relative strength” as more people work and study from home, he believes that “even this favored end market won’t be spared from macro weakness.”
Stein is concerned by a recent report indicating that Alphabet Inc. GOOG, +1.03% GOOGL, +1.01% is “recalibrating the focus and pace of [its] investments in areas like data centers and machines,” as well as his own industry conversations that showed some suppliers recently began seeing order cancellations.
He rates Intel’s stock at hold while upping his price target to $59 from $58.
Read: Intel stock falls after report says Apple plans to debut its own Mac chips in 2021
Yet some analysts were willing to look past issues from the company’s outlook, including the disappointing gross margin commentary due to increased costs from the 10-nanometer ramp.
“We view the gross margin miss that is weighing on Intel post market as less meaningful assuming inventory reserves reverse per management’s guide,” wrote Wedbush analyst Matt Bryson, who rates the stock at underperform and lowered his price target to $51 from $52. “In fact, arguably the ‘faster’ ramp of Tiger Lake that is leading to higher reserving should be viewed as a positive result.”
Evercore ISI analyst C.J. Muse echoed the sentiment.
“[M]uch of the negative impact to June gross relates to reserves associated with an accelerated 10-nanometer ramp, both for Tiger Lake and Ice Lake – which is a good thing,” Muse wrote. He said the company is accelerating this ramp to meet higher-than-anticipated demand for the year, which he views as an encouraging sign.
He has an in-line rating and $66 price target on the stock.
Bernstein’s Stacy Rasgon explained that the weak margin outlook was the result of a pre-qualification reserve charge, and said that “these charges are normal (taken whenever the company launches a new product) and are temporary, reversing when the [qualification] is completed and the reserve is released.”
He expects the charge to be a one-time factor but said Intel’s management should have better prepared investors for this possibility earlier on. Still, without the charge the “gross margin outlook would have been ~59%, likely palatable enough given the near-term revenue trajectory,” Rasgon wrote, while reiterating a market perform rating and increasing his price target to $55 from $50.
At least two analysts hiked their price targets after the report, according to FactSet, while at least six lowered theirs. Of the 44 analysts tracked by the service who cover Intel’s stock, 16 have buy ratings, 23 have hold ratings, and five have sell ratings, with an average price target of $63.05.
Intel shares have declined 1.4% so far this year as the Dow Jones Industrial Average DJIA, +0.16% has fallen 19%.
