The stock price of Intel Corporation (NASDAQ:INTC) 1.24% to $26.49 per share after an analyst at Pacific Crest Securities upgraded his rating for the shares of the chip maker to Outperform with a $31 price target.
Strong corporate PC demand
Pacific Crest analyst Michael McConnell explained that the upgrade was based on the signs of strong corporate demand for personal computers (PCs) and potential gains in the server markets. The analysts maintained his position that robust demand in the corporate world offsets the weakness in the consumer PC market.
According to the analyst, the decision of Microsoft Corporation (NASDAQ:MSFT) to discontinue its support for the Windows XP operating system is driving the strong demand for corporate PCs. The sales of corporate PCs started to turn around in the latter part of 2013.
McConnell said his conversations with first-tier motherboard manufacturers and notebook ODMs show that PC OEM pulls for corporate platforms continued to increase in the first quarter this year. According to him, motherboard manufacturers indicated a 5% to 10% sequential unit sales growth for the current quarter.
He noted macroeconomic growth in North America also contributes to the strong corporate PC demand.
McConnell also expressed optimism on the strategy of Intel Corporation (NASDAQ:INTC) in obtaining market share in notebook computers with an aggressive push for its Bay Trail, its atom-based CPU.
Grantley server platform
In addition, McConnell believed that the new server platform of Intel Corporation (NASDAQ:INTC) is poised to “re-accelerate spending at traditional IT customers,” which could significantly lift the company’s data center business.
In a note to investors, McConnell wrote, “We believe Intel’s upcoming Grantley server platform will reaccelerate spending at traditional IT customers and serve as a likely driver for Intel’s Data Center Group (DCG) business (22% of company sales, ~40% of operating profit) in 2015.”
The analysts expected that Grantley will offer major feature set improvements including support for DDR4 memory, four lanes of 10 gigabit Ethernet (10gE) support, greater floating point capability, and better energy efficiency.
“Prior discussions with Intel management last quarter indicate that customers are already indicating strong demand for Grantley given its disclosed specifications. We expect Grantley to begin shipping into the DP market (~85% of server processor units) in the second half of 2014. In terms of sensitivity to our model, we estimate that every 100 basis points of percentage change in DCG revenue growth impacts EPS by $0.02,” added McConnell.