Intel Corporation (NASDAQ:INTC) has been one of the greatest technologically innovative companies in the twenty first century. Their innovations take place on an incredibly small scale and are never seen or touched by consumers however, leaving them unappreciated for the most part.
That didn’t matter to Intel Corporation (NASDAQ:INTC), however. The company, through innovation, grew to rule close to the entirety of the personal computer market. Gross margins were high and profits were flowing. Those days may be behind the company. Looking forward to the earnings report Intel will deliver on Wednesday, it seems there may be some problems for the firm.
At the end of October, the value investor Mohnish Pabrai gave a presentation and took part in a Q&A session at Boston College and Harvard Business School on the Uber Cannibal Investor Framework, which he has developed over the past decade. Uber Cannibals are the businesses “eating themselves by buying back their stock,” the value Read More
According to a new report from Piper Jaffray, Intel Corporation (NASDAQ:INTC) will not be able to hold its gross margin at the expected level in its coming earnings report, and that miss will likely turn into a trend for the micro-processing giant. The prediction is grim reading for Intel investors.
Technological Shift-Intel not ready
According to the report, 22nm chip fabrication demand is probably below expectations. The company’s fabrication utilization stands at around 60 percent according to the report. The problem likely relates to low demand for Ivy Bridge CPU’s, and lack of a quick take off in Haswell demand.
The firm’s newest desktop processors Haswell, are technological marvels, but they are not good enough to shake the real problems from the desktop market. Tablet computers and mobile devices are replacing desktops in many homes. Intel Corporation (NASDAQ:INTC) simply isn’t ready for this transition.
According to the Piper Jaffray analyst costs are likely to remain high for some years ahead as new fabrication methods are more expensive. This means that the Intel gross margin is likely to be compressed, though the extent of the compression will depend on technological progress.
Piper Jaffray expects Intel Corporation to earn 39 cents per share on revenue of $12.9 billion. The report puts a price target of $20 on the company’s shares, well below the company’s current share price; just under $24.
Piper Jaffray is negative on Intel Corporation (NASDAQ:INTC) and the analysts there might have good reason. Most of Wall Street however, is still positive on the firm. Consensus estimates puts the firm’s earnings for this quarter at 40 cents per share.
On today’s market, Intel Corporation (NASDAQ:INTC) shares have fallen a fraction, adding to investors’ pains in a month where the firm has lost 4 percent of its value.