Intel Corporation (NASDAQ:INTC) has mixed prospects for growth and capital intensity, according to analysts at Morgan Stanley (NYSE:MS) Research based on the company’s blue paper, which shows that low-priced processors in mobile devices could limit its revenue.

Intel corporation

On the other hand, the blue paper indicated that Intel Corporation (NASDAQ:INTC) would be able to deliver a better performance in the server space. The analysts cited that the semiconductor company could see some capital intensity relief from EUV by 2016, but at the cost of some competitive advantage.

Morgan Stanley analysts believe that tablets and smartphones will continue to use fairly low-priced CPUs, which could limit the revenue prospect of Intel Corporation (NASDAQ:INTC) even if the company succeeds with new form factors. According to them, the semiconductor company would succeed in new form factors as the needs for more sophisticated applications for smartphones and tablets arise or if Ultrabook convertible form factors alleviate tablet cannibalization.

According to the research firm, Intel Corporation (NASDAQ:INTC) is executing well in new form factors to boost Ultrabook convertibles and meet its desired outcomes. However, the company does not have entire control of the results of its efforts.

In terms of capital intensity, the analysts believe that EUV would work by 2016, which would allow reduced spending and improved cash flows, but it will lessen the company’s relative advantages. According to them, “If the economics of Moore’s Law continue to slow, ramifications for Intel are mixed. While cash flow and returns will be worse, the company’s relative manufacturing advantage vs. TSMC and Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) can grow.”

Analysts at Morgan Stanley retained their underweight rating for the shares of Intel Corporation (NASDAQ:INTC) and $20 price target. The analysts explained that their conviction for the company was based on their concerns regarding high capital expenditures in an environment with uncertain demand.

According to them, “Our concern has been that management has been too bullish on PC demand (which is playing out) and that there is margin erosion as new capacity comes on line (which is still ahead). In addition, the analysts projected that the average selling price stopped climbing, fixed costs increased, and unit growth remains weak in 2013. Furthermore, they projected Intel’s gross margin to decline from 62% last year to 58.7% by 2014. The company’s fixed cost might increase by 10% from 2012 to 2014 due to capital spending in 2011 to 2013.

On the other hand, they observed that Intel’s execution is strong and its supply chain demonstrates that it can defend its turf vs. Windows on ARM in notebooks with little disruption. According to them, its data center will continue to grow in units and ASPs over the next few years. They believe that a dividend yield of 4% will likely protect the company from downside.