Intel Corporation Must Address These Concerns

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Intel Corporation (NASDAQ:INTC) posted impressive revenue and gave strong guidance for the coming quarter. However, a report dated July 16, 2014 from Summit research by analysts Srini Sundararajan, Srini Nandury and Rich Williams lists few concerns/Questions going forward for Intel.

Intel must address these

Intel postponed the shipping of 14 nm chip to the first-quarter of 2015 and Skylake by late 2015. Also, analyst notes that 10nm orders in the fourth quarter are also doubtful. The chip maker delayed it LTE baseband qualification to early third-quarter compared to the second-quarter earlier. Also, “Panasonic’s induction notwithstanding, foundry strategy remains unclear,” believe analysts.

Qualcomm is way ahead of Intel in time and capabilities, while the latter’s Mobile roadmap include combination of processor/communication functions only in late 2015, which is worrying analysts.

Intel’s contra-revenue strategy is, also, a little bit shaky, and analysts are doubtful over the sustainability of the business. The company should start manufacturing SoFIA rather than being “being manufactured at TSM” for cost advantage, believe analysts.

PCs sales have stabilized currently primarily due to Windows XP EOL, but after this phase, analysts expect the decline to continue in 2015 “amid cannibalization by tablets.”

Estimates raised by Imperial Capital

Intel posted revenue of $53.9 billion for the previous 12 months, and EBITDA for the company came in at $21.9 billion and GAAP Earnings per share of $2.02. The company has $17.3 billion in cash and total debt of $14.7 billion, equating to net debt of ($2.5) billion.

Imperial Capital analyst Ashok Kumar, in a report dated July 16, 2014 assigned Outperform rating to the stock and gave one-year price target of $37. The price target is 17% above the recent share price. Based on the management guidance, analyst have increased the financial revenue estimates to $55.4 billion from $55.1 billion, and financial year 2014 GAAP Earnings per share is now projected at $2.17 from $2.06 per share. For 2015, revenue estimate has been increased to $57.1 billion from $55.6 billion, and financial year GAAP EPS estimate to $2.47 from $1.85.

In the second quarter, revenues came in at $13.8 billion, an increase of 8% quarter over quarter and year over year. Management is confident that the performance will surge on the back of improving economic climate, as well as a better PCs refresh cycle and continued strength in servers. The Gross margin came in at 64.5%, rising 50 basis points above the analyst estimate, on the back of declining start-up costs, higher volumes and lower unit costs.

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