Chris Danely of Citigroup has reiterated his Neutral rating on Intel, saying, “We are starting to observe negative data points in the PC supply chain.” The negative note follows a collection of extremely negative notes Danely and colleagues issued on the PC market two weeks ago.
Downside to Intel estimates
Danely cites the work of colleague William Yang to show that shipments by notebook computer original design manufacturers (or ODMs) are trending below what is considered normal for this time of year, and it seems that the ODMs will come in below his prior forecast.
Danely said a decline of 38% was seen in notebook ODM units in January on a MoM basis, below their Asia hardware analyst’s expectations. The softening of the PC end market has caused them to downgrade the semiconductor sector and lower their estimates for Intel.
“We believe soft January notebook shipment data underscores our belief that there is downside to the sector and to Intel’s Consensus estimates. January notebook ODM units below expectations… Taiwan notebook ODM shipments declined 38% MoM in January, below our Citi Asia Hardware Analyst William Yang’s estimate and the three-year average of down 14% MoM,” the analyst wrote.
Demand for PCs is dropping, and Yang attributes the weakness in January notebook shipments to lower demand and channel inventory de-stocking. He expects a decline of 20%-25% QoQ in overall 1Q16 notebook units, which is well below his prior estimate of a drop of 10%-15% QoQ and normal seasonality of down 14% QoQ.
Three scenarios for EPS
Danely feels overall expectations for Intel may drop and has offered three scenarios. His base case of $2.35 per share is a little better than the consensus estimate of $2.30. The worst-case scenario sees a decline of 9% year over year in earnings to $2.14 per share, and in the bull case, earnings per share rise to $2.58. For the last quarter, the chip maker reported EPS of 74 cents, beating the consensus estimate of 63 cents. Revenue for the quarter came in at $14.9 billion, versus analysts’ expectations of $14.8 billion.
At 9:34 a.m. Eastern, Intel shares were up 0.59% at $28.94. Year to date, the stock is down by over 16%, while in the last year, it is down by almost 17%. The stock has a 52-week high of $35.59 and a 52-week low of $24.87.
