Deutsche Bank analyst Ross Seymore reiterated his Buy rating on Intel with a price target of $37 in a note on Monday. Though Seymore gave a Buy to the chip maker, he lowered his estimates owing to softness in the PC segment and delayed seasonality.
Seasonality benefits postponed
Though the second-quarter performance of the company is on track to meet the guidance range, the analyst believes the numbers could come marginally below the consensus. Seymore notes that the timing of the launch of Windows 10 and the Skylake, the next-generation processor, could push the seasonality benefits to a large extent into the fourth quarter rather than the third.
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“[W]e continue to believe INTC offers a favorable risk/reward at its current discount valuation and expect shares to appreciate as PC headwinds lessen (2H15/2016),” states the Deutsche Bank analyst noted in his report. The analyst suggests that the below-estimated demand of PCs and product launches pushing seasonality further into the second half will likely lead to channel inventory burn.
The analyst cites this as the reason for lowering his gross margin estimates for 2015 and 2016 by 50 basis points. Intel is expected to adjust costs to support lower revenue, so he did note that a lower operating expenditures will compensate for the decline to some extent. The analyst also expects a drop in share buybacks in 2015 as Intel will be building its domestic cash balance to close its acquisition of Altera.
Intel may hit revenue guidance
Credit Suisse analysts reaffirmed their Outperform rating on the chip maker with a price target of $40, suggesting that the second-quarter revenue guidance will be achievable even though PC sales are expected to be weak in April and May. However, Credit Suisse is conservative when it comes to Intel achieving its full-year target.
Intel is looking to reduce manpower in the wake of poor PC sales. The new layoffs will be exclusive of the voluntary separation packages that the company is offering to some of its R&D and manufacturing employees at the Fab D1X facility in mid-May. These layoffs are not attached to the company’s decision of buying Altera for $16.7 billion.
Intel is scheduled to report earnings on July 21. At around 10 am Eastern, Intel shares were down 0.1% at $31.36, and year to date, the stock is down by almost 15%.