'A Headline Negative': Intel Analysts React To Chipmaker's Exit From 5G Modems

The big headline on Wall Street on Wednesday is a truce between Apple, Inc. AAPL and QUALCOMM, Inc. QCOM after years of patent and royalties disputes. Both Qualcomm and Apple shares were trading higher Wednesday.

Intel Corporation INTC was a surprise winner and was higher by 3.4 percent at the time of publication. 

Several Wall Street analysts weighed in on what the Apple-Qualcomm deal means for the chipmaker, which announced Tuesday that it was exiting the 5G smartphone modem sector. 

Voices From The Street

Mizuho analyst Vijay Rakesh said the Apple-Qualcomm deal is a modest negative for Intel.

“We believe this is a headline negative for INTC as it takes out $1 billion of annual revenue in C2020 but mostly at breakeven OM, as INTC also announced its exit from the 5G modem segment,” Rakesh said in a Wednesday note. Qualcomm now has a clear 5G runway, he said. 

KeyBanc Capital Markets analyst Weston Twigg said Intel’s announced exit from the 5G modem market should free the company to focus on higher-margin products.

“In our view, continued investment in its low-margin modem business made little strategic sense amid fab capacity constraints,” the analyst said in a Tuesday note. Dropping the 5G modem business likely won’t impact Intel’s 2019 numbers, but it could potentially have a positive impact on the company’s longer-term revenue and margin picture, he said. 

Raymond James analyst Chris Caso said the decision to drop the modem business leaves Intel with some difficult questions to answer.

“While Intel's decision is likely to benefit costs in the near term, it opens the question about what happens to Intel's client business in the longer term, since we think all client devices will have 5G modems in the long term,” the analyst said.

Intel must also soon decide whether it intends to continue its memory business as well, according to Raymond James. 

Ratings And Price Targets

• Mizuho has a Buy rating and $56 target.
• KeyBanc has a Sector Weight rating.
• Raymond James has an Underperform rating.

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