Intel Corporation Has No Reason To Trade At 10-Year High

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Intel Corporation (NASDAQ:INTC) stock soared more than 7% to above $30 on Friday for the first time since March 2004. The big jump came after the chipmaker raised its second quarter and full year revenue guidance. Intel raised its Q2 revenue forecast from $13 billion to $13.7 billion. And because of the better second quarter, the Santa Clara-based company now expects “some growth” in FY2014 compared to the previous guidance of flat revenue.

Intel’s core market remains in secular decline

Ascendiant Capital Markets analysts Cody G. Acree and David N. Williams said in a research note that Intel Corporation (NASDAQ:INTC) stock has no reason to trade at a level not seen since 2004 because its core market remains in secular decline. The short-term upside is mainly driven by the enterprise upgrade cycle after Microsoft Corporation (NASDAQ:MSFT) ended its support for Windows XP. Once the upgrade cycle is over, analysts expect Intel’s core business to decline 10% in 2015.

Riding on the enterprise revenue upside, Intel Corporation (NASDAQ:INTC) also increased its gross margin guidance by 1% to 64%. The company now expects its second quarter expenditure to jump from $4.8 billion to $4.9 billion. Taxes are also running higher at 28%, compared to the previous forecast of 27%. Ascendiant Capital Markets has a Sell rating on the stock, though it has raised the price target from $20 to $22. Intel’s full-year operating expenses are expected to be $19.2 billion versus the previous guidance of $18.9 billion.

Though the short-term upside on Windows XP discontinuation is a good thing, Intel Corporation (NASDAQ:INTC)’s core business is declining and the situation is unlikely to change. The chipmaker has experienced minimal success in the smartphone and tablets market. Ascendiant says investors should take advantage of the big jump and build short positions.

Can Intel challenge Qualcomm?

Intel Corporation (NASDAQ:INTC)’s attempt to combat the secular decline in the PC market by gaining market share in smartphones and tablets puts it in direct competition with Qualcomm, Inc. (NASDAQ:QCOM). Basic economics suggest that when a company moves from a near monopolistic position (read Intel) to a segment where there is extreme competition, its prices and margins are pressured. And that’s what is going to happen with Intel.

Intel Corporation (NASDAQ:INTC) shares inched up 0.30% to $29.96 at 2:57 PM EDT on Monday.

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