Intel Corporation (NASDAQ:INTC) published the second quarter 10-Q filing a few days ago, and expect macroeconomic condition to be favorable in the second half, though the rate of change will be slower than expected earlier.
Intel’s three biggest clients
Baird Equity Research analyst Tristan Gerra and Nicholas A. Clare in a report has mentioned some important takeaways from the result and has assigned “Outperform” rating to the stock. Intel Corporation (NASDAQ:INTC) earned 42 percent of net revenue in the first half from three of its largest customers, which is an increase from 41 percent in the first half of fiscal 2012. Hewlett-Packard Company (NYSE:HPQ) contributed 16 percent of net revenue, a decline from 17 percent in the corresponding half of 2012. The second customer, Dell Inc. (NASDAQ:DELL) accounted for 15 percent of net revenue, an increase from 14 percent in the previous year and Lenovo added 11 percent of net revenue.
Intel’s 2Q performance
Cash flow from operations came in at $4.72 billion, the second lowest in the previous five quarters. Total inventory in balance sheet, increased by 4 percent in the second quarter. The company repurchased 23.3 million shares in the second quarter of 2013, worth $550 million. It still has $4.2 billion of remaining repurchase authorization. Finished goods inventory surged 3 percent sequentially and is now 40 percent of total inventory tied for the lowest level in the last 10 quarters.
Catalyst for the stock
Baird has set Intel Corporation (NASDAQ:INTC) shares price target at $26, and the catalyst for stock, according to the report, are the rise of Haswell and initial Bay Trail ramp, seasonality in the second half and enhancement, in gross margin expansion. The report says that long term investors should check on the capacity of Intel to gain significant traction in both tablet and phone markets as the company is targeting to enhance its Atom. Capital expenditure is expected to decline next year.
Risks for Intel
According to the report, there are certain downside risks for Intel stock. There may be a pricing war with ARM-based products, which will lead the price to decline more rapidly than the cost bringing down profitability of the firm. Sluggish PC demands could be another factor affecting profitability.
Atom processors of Intel Corporation (NASDAQ:INTC), according to the report, were a success in the notebook, but tablets took their toll as they do not have Intel processors often. Increase in demands of tablets could further bring down the shares.
Intel Corporation (NASDAQ:INTC) at present is dominating process technology over its competitors. If the company fails to implement next geometry node, revenue and profitability will be down.
There has been anti-trust and anti-competitive litigation against Intel Corporation (NASDAQ:INTC), in the past, and could further become a potential target. Any sluggishness in the manufacturing facility will affect Intel more than its competitors due to huge fixed costs.
