Morgan Stanley (NYSE:MS) lowered its estimates of Intel Corporation (NASDAQ:INTC) and Advanced Micro Devices, Inc. (NYSE:AMD) in a report about the incremental PC market weakness. PC supply chain is a cause of worry.
The report analyzes the recent data which reflects the slowing demand.
The data used in the report includes notebook ODM information for February, which reveals a combination of market weakness and tight touch panel supplies including 5 ODMs – down by 26 percent on a yearly basis.
A Taiwanese analyst, recently, revised his estimates of PC ODM notebook shipments for the first quarter of 2013 to decline by 19 percent, which is significantly lower than the previous estimated decline of 13 percent.
Another data set used is the U.S. retail PC sales, which improved year-over-year till January, but have since declined. Another data set, mid-quarter update by TI, reveals that PCs and notebooks in particular, underperformed expectations.
Basing their analysis on the above information, the report makes the following changes to its estimates:
Intel Corporation (NASDAQ:INTC): First quarter revenue is lowered from $12.78 to $12.50 billion, though the revised estimates are still within the guidance range of $12.2 – 13.2 billion. The revised estimates are driven mainly by greater decline in PC clients. The Data Center, expected to decline 2.1 percent quarterly, and all other departments, expected to drop 4.4 percent quarterly, are unchanged. EPS for the first quarter is reduced from $0.47 to $0.45, and full year EPS is revised from $1.95 to $1.87. For the second quarter, some rebound is expected.
The report sets a price target of $20 for Intel, but is concerned that the management has been too bullish on PC demand, and there is margin erosion as new capacity comes on line. The average selling prices are expected to stop rising, fixed costs are expected to increase and unit growth is expected to remain slow in 2013. According to Morgan Stanley, GM’s are expected to decline from 62 percent in 2012 to 58.7 percent in 2014.
Advanced Micro Devices, Inc. (NYSE:AMD): Revenues for the first and second quarter is revised down from $1.04 billion to $1.02 billion and 1.00 billion respectively. The firm’s estimate falls within the low end of AMD’s$1.02 – 1.09 billion range for the first quarter. EPS for the first quarter is lowered from $0.17 to $0.18; for the full year, the EPS is reduced from $0.25 to $0.31.
For AMD, the report gives a base case price of $2.50 and feels that Advanced Micro Devices, Inc. (NYSE:AMD) has products that can fill important niches in the market. Video game consoles are considered to be a key driver in the company’s quest for returning to profitability, with little prospect for PC share gains.
