Intel Analysts See End Of 'Computing Dominance' Amid 7nm Node Delay, Competitive Threat

Intel Corporation INTC reported forecast-beating second-quarter results but painted a mixed picture for the current quarter, sending the chipmaker's shares sharply lower Friday.

The Intel Analysts: BofA Securities analyst Vivek Arya downgraded Intel from Buy to Neutral and lowered the price target from $70 to $62.

Morgan Stanley analyst Joseph Moore maintained an Equal-weight rating and reduced the price target from $65 to $61.

Raymond James analyst Chris Caso maintained a Market Weight rating.

Rosenblatt Securities analyst Hans Mosesmann maintained a Sell rating and $45 price target.

Needham analyst Quinn Bolton maintained a Hold rating on Intel shares.

KeyBanc Capital Markets analyst Weston Twigg maintained an Overweight rating and $82 price target.

Intel's Chip Delay Positive For AMD, NVDA, BofA Says: Taking the sheen out of the better-than-expected second quarter results, Intel announced a delay in the launch of its next-gen 7nm products of more than six months, BofA analyst Arya said in a note.

This raises questions concerning how Intel's business model will evolve if it has to outsource more products, he added.

The 7nm delay follows over two years of delay on the current 10nm process, calling into question the long-term competitiveness of Intel's manufacturing process, Arya wrote in the note.

The analyst sees Intel's delay as materially positive for key rival Advanced Micro Devices, Inc. AMD, which is already ramping its 7nm products, equivalent to Intel's 10nm chips.

BofA expects PC and server customers to provide more sockets to AMD, helping drive its PC/server market share of 17% and 10%, respectively, back to its 20% and 25% peak from back in 2006.

NVIDIA Corporation NVDA could also benefit as it ramps its 7nm accelerators for data center AI, Arya said. 

Intel's Projection Of Front-Half Loaded 2020 Playing Out, Morgan Stanley Says: Morgan Stanley sees an end to the sharp upward EPS revision cycle for Intel and compute stocks that began in 2019, Moore said in a note. 

The companies that are positively driven by the work-from-home economy may struggle later this year and early next year even as the broader market recovers, the analyst said.

Intel has been projecting a front-loaded year since January, and that's playing out, with a strong second quarter and surprisingly weak third-quarter guidance, he said. 

Morgan Stanley said the weak guidance has readthroughs for the broader semiconductor sector in the second quarter, although it conceded some of the weakness may be Intel-specific.

"7 nm delays are a negative for the narrative, but the willingness to outsource could be a watershed transition for the company," Moore said. 

See also: 6 Reasons Why Goldman Sachs Is Bearish On Intel

Roadmap Missteps Signals End of Intel's Computing Dominance, RayJay Says: By outsourcing leading edge technology, presumably to Taiwan Semiconductor Mfg. Co. Ltd. TSM, Intel would give up the main source of its competitive advantage for 50 years, Caso said in a note. 

Intel may then have to compete only on architecture, which may not be enough to maintain the dominant market share and premium margins that are now expected, the analyst said. 

RayJay sees cloud customers moving to custom solutions and accelerated compute platforms from vendors such as Nvidia rather than using products based on Intel's inferior transistors.

Caso said he continues to estimate earnings power of $5 through 2021.

"Nonetheless, we view the roadmap missteps to be stunning failure for a company once known for flawless execution, and could well represent the end of INTC's computing dominance,." 

Fundamental Intel Advantage Lost With Outsourcing: Intel's reliance on 14nm and 10nm for the next few years as the competition moves to 7nm/5nm/3nm could serve as a prolonged gross margin, ASP and unit share headwind, Rosenblatt analyst Mosemann said in a note. 

Intel's transition to a fabless or fab-lite company, though it would be a benefit at some point, eliminates the historical and fundamental Intel advantage of two-year global process technology leadership, the analyst said. 

Rosenblatt sees AMD, Nvidia, Broadcom Inc AVGO, Marvell Technology Group Ltd. MRVL and Xilinx, Inc. XLNX as clear winners on Intel's woes.

Dissecting the second-quarter performance, Mosesmann said that sequential increases in the Data Center Group and NVM Solutions Group helped offset sequential declines in the Client Computing Group, IoT Group and Programmable Solutions Group.

The company saw strong demand for NAND, 5G networking solutions and a richer server mix, as well as mobility products and data center infrastructure from COVID-19 related dynamics, the analyst said. 

With higher revenues, lower operating expenditure and higher other income offsetting lower gross margin and a higher tax rate, the bottom line exceeded expectations, he added.

Needham Outlines 3 Headwinds For Intel: Intel's gross margin woes stemming from the the faster-than-expected ramp of its 10nm products could compound with the delay in the 7nm process and product by 12 months and six months, respectively, Needham's Bolton said in a note. 

The analyst sees further risks such as intensifying competition in the server and PC markets and moderation in spending by its cloud and communications service provider customers over the next two quarters.

The increasing threat of share loss, execution risk and prolonged gross margin headwinds will remain overhangs on the stock, according to Needham. 

KeyBanc Sees Compelling Risk-Reward, Long-Term Upside Potential: The new Intel is not only focusing on manufacturing but also investing heavily in product development, KeyBanc's Twigg said in a note.

This should pay off as compute demand continues to expand into large new markets, the analyst said. 

"We remain Overweight for a compelling risk/reward profile and good LT upside potential."

INTC Price Action: At last check, Intel shares were plummeting 15.93% to $50.78. 

Related Link: Intel, Texas Instruments To Kickstart Chip Earnings With 'Better-Than-Feared' Results