Intel May Be Guiding Revenue Too Aggressively: Goldman Sachs

Intel May Be Guiding Revenue Too Aggressively: Goldman Sachs
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Goldman Sachs analysts James Covello, Jack Sheng, and Chelsea Jurman maintain their Sell rating on Intel, asserting that the company’s guidance is on the aggressive side.

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Intel gained significant revenue and unit share from AMD in 4Q13

In 4Q13, Intel Corporation (NASDAQ:INTC) gained approximately 80 bps of revenue share and 240 bps of unit share from Advanced Micro Devices, Inc. (NYSE:AMD), according to data from Mercury Research (Exhibit 1). In mobile, Intel’s unit share increased significantly by about 450 bps to 90%, and revenue share increased by 200 bps to 96%. We believe higher unit share was driven by Intel’s new Chromebook, which uses a low-end processor and would explain the much higher gain in unit share relative to revenue share. In servers, Intel Corporation (NASDAQ:INTC)’s unit share stayed roughly flat at 97%, and revenue share increased by 50 bps to 98%. In desktop, Intel’s unit share was up by 30 bps to 80% though revenue share declined by 40 bps to 89%. We believe Intel will continue to gain share from Advanced Micro Devices, Inc. (NYSE:AMD) in the performancedriven areas of the PC market, as we believe Intel’s integrated approach to design and manufacturing creates a processor-power advantage. Since 1Q12, AMD has lost nearly 4% of its PC revenue share to Intel (Exhibit 2).

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Pricing weakened slightly in 4Q13

Intel Corporation (NASDAQ:INTC)’s overall PC client MPU ASP was down 1% qoq, with traditional notebook ASP flat qoq and desktop ASP down 2% qoq. Intel’s server MPU ASP increased 2% qoq. We note that Intel’s 4Q report of flat ASP qoq in PC Client Platform included chipset ASPs. We believe softer pricing in Intel Corporation (NASDAQ:INTC)’s PC client business was most likely due to more competitive pricing during the past holiday season. We believe continued high wafer loadings from Intel and a smaller PC market could create excess MPU supply, leading to prolonged ASP pressure.

Maintain Sell rating on both Intel and AMD

We maintain our Sell rating on Intel Corporation (NASDAQ:INTC) as we believe Intel Corporation (NASDAQ:INTC) is guiding revenue and implied EPS too aggressively. Specifically, we see risks to 2014 guidance as revenue targets would require stabilization in PCs and acceleration in Data Center growth that we do not believe will take place. Additionally, we believe Intel’s GM guidance implies a rise from 59% to low 60s throughout the year despite excess capacity, continuing core PC weakness and “contra revenue” from tablet sales. We also maintain our Sell rating on Advanced Micro Devices, Inc. (NYSE:AMD) given that we expect share loss to continue, particularly in low-end consumer PCs, which is the segment most cannibalized by tablets and an area Intel is currently targeting. Additionally, we expect further margin pressure driven by the mix shift toward gaming as well as low-end consumer products.

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