How close is the PC market to bottoming out? JPMorgan analysts Christopher Danely and Shaon Baqui say we’re seeing some of the first positive PC data points in many years. They say if this keeps up, they could warm to Intel Corporation (NASDAQ:INTC) a bit.
PC food chain heats up Intel
The analysts pointed to a string of positive data from the PC supply chain. Hewlett-Packard Company (NYSE:HPQ), Microsoft Corporation (NASDAQ:MSFT) and other PC makers beat expectations. Most members of the PC making industry, including Intel, have said PC demand is starting to improve while the tablet market is finally starting to moderate.
Early suggestions are that PC declines could start to moderate in 2014. Both of the two biggest notebook manufacturers, Quanta and Compal, guided for shipments to be flat to down in 2014, compared to a 11% decline this year. This would mean demand could be improving. Also the tablet market is starting to become saturated, and price elasticity is slowing down as the average selling prices of tablets has fallen rapidly within the last two years. JPMorgan analysts are predicting just a 40% year over year growth for the tablet market next year, compared to the 62% growth this year.
What would make Intel look even better
The JPMorgan team said if they become more “confident” that the PC market is getting better, they will become more positive on Intel Corporation (NASDAQ:INTC) shares. Intel said on its analyst day last month that it expects the PC market to decline by the low-single digits next year. This is in line with the majority of other PC supply chain companies and indicates that Intel is starting to get in touch with reality. The JPMorgan team sees this as a big positive for Intel because they think it would be best if the company accepted the decline in PCs and adjust its resources and spending.
They are not yet ready to say that the PC market is definitely bottoming out because they need more data. However, they think Intel Corporation (NASDAQ:INTC) has “set the bar low enough” that if PCs are about flat next year, the company can beat guidance.
The JPMorgan team said they are “warming” to Intel shares, although they remain Neutral on the stock with a $20 per share price target.
