4 Reasons Why BofA Downgraded Intel After The Q2 Print

Intel Corporation INTC reported second-quarter non-GAAP earnings per share of $1.04 and sales of $17 billion after the close Thursday.

Analysts, on average, estimated EPS of 96 cents per share on revenue of $16.76 billion. 

The chipmaker raised its full-year revenue and non-GAAP EPS guidance.

The Analyst

Bank of America Merrill Lynch analyst Vivek Arya downgraded Intel shares from Buy to Neutral and lowered the price target from $62 to $56.

The Thesis

Despite the beat-and-raise quarter, four factors could keep Intel's stock rangebound, Arya said in a Friday note. (See the analyst's track record here.)

They are:

• The growth implied by the 2019 EPS estimate suggests a deceleration from 20 percent to just 5 percent.
• The analyst sees competitive and headline risks stemming from delays in Intel's 10nm products. The 10nm Ice Lake server chips may not be released until 2020, the analyst said. 
• Arya sees potential for a gross margin decline as Intel's product mix shifts toward memory and modems.
• Capital expenditure intensity, with memory insourcing adding to the pressure.

Despite data center group revenue coming in slightly shy of estimates, the metric still grew a solid 27 percent year-over-year, the analyst said.

Advanced Micro Devices, Inc. AMD's target of 5-percent unit share by the end of 2018 implies server sales of $150 million — far below Intel's $6-billion quarterly data center growth — and opportunities in 5G/telecom and non-CPU sales, Arya said. 

In 2018, Intel is on track for 11 percent and 20 percent sales and EPS growth, respectively, according to BofA. 

The Price Action

Intel shares, which gained about 14.4 percentyear-to-date ahead of the print, were falling 8.6 percent to $47.68 at the time of publication Friday afternoon. 

Related Links:

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