Intel stock price target cut amid restructuring and competition
On Friday, Cantor Fitzgerald adjusted its outlook on Intel Corporation (NASDAQ: NASDAQ:), reducing the stock’s price target from $40.00 to $27.00 while maintaining a Neutral rating. The revision follows Intel’s reported struggles with its June results and September guidance, which fell short of expectations in almost all categories. The company’s revenue and gross margins for both periods missed consensus estimates, with the June quarter’s Data Center Group (DCAI) segment showing the weakest performance.
Intel’s transition of its Meteor Lake processors to its Intel 4/3 manufacturing process in Ireland from Oregon has been identified as a major factor affecting gross margins, due to higher wafer costs early in the transition. However, this move is expected to yield $1 billion in capital expenditure savings over time.
Management also cited challenges with product mix and more competitive pricing than anticipated. Despite these setbacks, Intel anticipates internal utilization rates to improve in the second half of 2025 as the Panther Lake processors begin to ramp up on the 18A process node.
The company’s client segment is expected to be flat or lower quarter-over-quarter for the September quarter, a deviation from typical seasonal strength, influenced by factors such as the cancellation of the Huawei license and market softness in China.
In the data center space, Intel’s DCAI segment is projected to grow modestly sequentially but remains below normal seasonality due to competition from companies specializing in accelerators, such as NVIDIA (NASDAQ:) and AMD (NASDAQ:).
Intel’s outlook includes a forecast of a modest loss in CPU market share to AMD in 2024 but anticipates gains against ARM. Recovery in the cyclical segments like Altera and Mobileye is anticipated to be less pronounced than expected.
To address these challenges, Intel has announced a significant restructuring plan, which includes a 15% reduction in headcount, equating to around 19,000 employees. This move is aimed at achieving $1 billion in cost of goods sold savings by 2025, and operating expenses are now projected to be $17.5 billion, lower than the consensus estimate of $20.7 billion.
The restructuring also entails the suspension of Intel’s dividend and a 20% reduction in planned gross capital expenditures, which are now set at $25-27 billion for 2024 and $20-23 billion for 2025. The company’s efforts are directed towards improving its operating leverage and returning to positive free cash flows post-restructuring. However, Intel’s ability to execute on its product roadmap and foundry strategy remains a critical factor for investors, as concerns about free cash flow generation persist without clear indications of success.
In other recent news, Intel Corporation has seen a series of analyst downgrades following disappointing earnings and revenue results. Cantor Fitzgerald, Roth/MKM, HSBC, and Raymond James have all adjusted their outlook on Intel, primarily citing concerns over the company’s gross margin challenges. This follows Intel’s recent earnings report, which fell short of market expectations, and the company’s guidance for the third quarter of 2024, projecting revenue and gross margin figures significantly below market expectations.
Moreover, Intel has announced a significant restructuring plan, including a 15% reduction in headcount and the suspension of its dividend, as part of an effort to improve its manufacturing operations. Despite these measures, Intel’s ability to execute on its product roadmap and foundry strategy remains a critical factor for investors.
On a positive note, Intel’s process roadmap is reportedly on schedule, and aggressive cost-cutting measures are expected to help limit cash burn. The company has also revealed the development of an optical compute interconnect (OCI) chiplet, aimed at enhancing data processing speeds within AI infrastructure, and its subsidiary, Mobileye, is expanding its technology partnership with Zeekr. These are the recent developments concerning Intel Corporation.
InvestingPro Insights
As Intel Corporation (NASDAQ: INTC) navigates through its restructuring phase, InvestingPro analysis provides a deeper look into the company’s financial health and market position. Intel is currently trading at a low P/E ratio relative to near-term earnings growth, with a P/E ratio of 30.21 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 29.48. Despite recent market pressures, Intel stands out as a prominent player in the Semiconductors & Semiconductor Equipment industry and has shown a commitment to shareholders by maintaining dividend payments for 33 consecutive years.
The company’s stock has taken a significant hit over the last six months, with a 6-month price total return of -31.33%, and it is trading near its 52-week low, which could signal a potential buying opportunity for value investors. Furthermore, analysts predict the company will be profitable this year, bolstered by a robust gross profit margin of 41.49% over the last twelve months as of Q1 2024. For investors seeking more comprehensive analysis, InvestingPro offers additional insights, including 5 more InvestingPro Tips that could help in evaluating Intel’s stock potential, available at: https://www.investing.com/pro/INTC.
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