5 Intel Stock Analysts On Chipmaker's Q1 Results, Foundry Strategy, Investments

Intel Corporation INTC shares are dropping after the chip giant's first quarter earnings report. 

The Intel Analysts: Rosenblatt Securities analyst Hans Mosesmann reiterated a Sell rating on Intel with a $40 price target.

Needham analyst Quinn Bolton maintained a Buy rating and reduced the price target from $74 to $70.

KeyBanc Capital Markets analyst Weston Twigg maintained an Overweight rating and $86 price target.

Roth Capital Partners analyst Suji Desilva maintained a Neutral rating and $65 price target.

Raymond James analyst Chris Caso reiterated an Underperform rating.

Intel Set For Challenging 2-3 Years, Rosenblatt Says: Intel's first-quarter beat and tepid 2021 guidance mark the year as a transitional one characterized by start-up and yield issues with 10nm and 7nm, new products that aren't good enough, residual cloud inventories, IDM 2.0 costs and industry shortages, Mosesmann said in a note.

These issues will not go away in the first half of 2022, the analyst said. 

The Intel Alder Lake client and Sapphire Rapids Xenon ramps, along with the new 10nm SuperFin and new CPU architectures, increase execution risk, the analyst said.

Margins will likely be pressured, at least until 7nm is at scale or the 2024 timeframe, he said.

"Even assuming a benign view of Intel's IDM 2.0 and Foundry Services strategy, longer-term that is, Intel is set for a very challenging 2-3 years in terms of share loss, margin pressure, and heightened execution risk by juggling many more balls in the air than ever before."

Related Link: Intel CEO Expects Global Chip Shortage To Last Another Two Years

Needham Anticipates Intel Turnaround: Intel's first-quarter results were better than expected and the guidance for the second quarter is mixed, Bolton said in a note.

The company increased its 2021 revenue guidance by $500 million and EPS guidance by 5 cents while reiterating the gross margin guidance, the analyst said. 

Intel is likely to face margin headwinds stemming from 7nm start-up costs, supply constraints, 10nm volume growth, competitive pricing pressure and increased operating expenditures, he said. This will pressure margins in 2021 and 2022, Bolton said. 

New CEO Pat Gelsinger is following the right strategy of focusing on regaining technological leadership and defending market share, the analyst said, expressing confidence in a potential turnaround.

KeyBanc Says ‘Intel Remains Undervalued:' Intel noted PC strength along with improving enterprise and government demand in the data center group, Twigg said in a note.

The company called the first quarter the bottom in data center, with sequential growth expected through the year, the analyst said.

Intel can protect itself from the risk stemming from Arm-based chips through its foundry strategy, he said.

Intel's investment in foundry growth and new technology nodes, though pressuring margins, will lead to top-line growth over the next few years, Twigg said. 

"We're encouraged by the new leadership and strategy, and we believe Intel remains undervalued in this era of rapidly expanding compute." 

Roth On Intel's Manufacturing Cadence: Intel's results reflected strong data center demand throughout 2021, offset by the continued client segment impact of manufacturing constraints, Desilva said in a note. 

Gelsinger has done a good job articulating Intel's focused IDM2.0 strategy, with foundry and x86 licensing opportunities in large hyperscale customers looking for design flexibility, the analyst said. 

"We expect INTC to return to a more robust manufacturing cadence with annual performance improvements as a goal," he said. 

Recovering data center demand through 2021 will likely be offset by continued client segment impact of manufacturing constraints, according to Roth Capital. 

Intel's Investment Returns Will be Poor, RayJay Says: Intel offered a mixed first-quarter report, with the results reflecting strong PC sales and a sharp slowdown in data center, RayJay's Caso said.

The guidance envisages a slowdown in the client segment, but also anticipates a rebound in data center, the analyst said. 

With the company communicating that it is entering a two-to-three-year investment phase, cash flow is likely to be negatively impacted, he said.

Returns on this elevated investment will likely to be poor, Caso said. 

"Intel's process roadmap ensures they will remain well behind the industry through at least 2024 – we don't think elevated investment can close that gap, and don't think Intel can attract either foundry or CPU customers with lagging technology." 

INTC Price Action: At last check, Intel shares were sliding 5.77% to $58.96. 

Related Link: Tony Zhang's Intel Trade Heading Into Earnings

Photo courtesy of Intel.