3 reasons to be bearish on Intel despite a new CEO and a $20 billion semiconductor production plan, according to Bank of America

Intel employees
Intel employees.

  • BofA analysts reiterated their “underperform” rating and $62 price target for Intel on Friday.
  • Intel turned in earnings results on Thursday and BofA analysts weren’t impressed by the lack of sales growth and falling margins.
  • BofA says investors would be better off buying shares of Intel rival Advanced Micro Devices.
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Bank of America gave three reasons for investors to be bearish about Intel despite the addition of Pat Gelsinger as CEO and a $20 billion move into the semiconductor production business on Friday.

In a note to clients, analysts led by Vivek Arya reiterated their “underperform” rating and $62 price target on shares of Intel.

The analysts said that the Santa Clara, California-based company has been hurt by rising competition from Advanced Micro Devices (AMD) and others. The team expects “muted” earnings growth over the next three years.

Arya and his team highlighted three specific reasons investors might want to consider alternatives to Intel shares moving forward.

Lack of sales growth

The first reason BofA believes Intel could struggle moving forward is that the firm was unable to grow sales in “a year when PC units and cloud Capex are growing 14-15%.”

Intel reported revenues of $19.7 billion for the first quarter of 2021, a 0.7% drop year-over-year, in Pat Gelsinger’s first earnings report as CEO on Thursday.

BofA’s analysts said that much of the quarterly drop in revenues was due to rising competition from AMD as well as a move to “insourcing” from Apple and Amazon.

Falling gross margins

Intel’s gross margins fell to 55.2% in the first quarter of 2021 compared to 60.6% in the same quarter last year. According to BofA’s analysts, that’s the lowest the firm’s margins have been since 2009.

Arya and his team said that they believe gross margins in the second half of 2021 will be even lower as well, at 55%-55.5%, due to rising depreciation expenses and incremental structural headwinds.

A potentially unprofitable move into semiconductor production

Finally, BofA said that Intel’s move into the foundry business (semiconductor production) is likely to be an expensive and unprofitable transition.

The foundry business is known for having lower margins, and BofA says the company’s limited experience and potential conflicts of interest could lead to poor results.

Intel has also been forced to lower buybacks in order to build infrastructure for its future foundry volumes, creating another headwind to EPS.

The BofA analysts concluded by saying they prefer Intel’s competitor AMD for investors in the coming years.

“We continue to prefer Buy-rated Advanced Micro Devices, which should grow 37% this year and can capitalize on INTC’s process technology missteps and foundry distraction, especially as AMD continues to gain customer share with its own consistent execution and solid pipeline,” the BofA team wrote.

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Intel drops 6% after a reported hack forced the chipmaker to release its 4th-quarter earnings early

Intel
  • Intel shares fell 6% on Friday after a reported hack forced the company to release earnings early.
  • A hacker gained unauthorized access to financially-sensitive information from Intel’s website, the FT said.
  • The chipmaker’s fourth-quarter revenue exceeded investor expectations and its own forecast.
  • Sign up here our daily newsletter, 10 Things Before the Opening Bell.

Shares in Intel fell as much as 6% in early trading Friday, after the company said its corporate website was hacked, pushing the chipmaker to release its fourth-quarter earnings earlier than planned. 

George Davis, Intel’s chief financial offer, told the Financial Times a hacker gained unauthorized access to sensitive data tied to its earnings report that was set to be published after the market close on Thursday. But upon finding out about the attack, the chipmaker released its results six minutes before the market close.

“An infographic was hacked off of our PR newsroom site,” Davis told the newspaper. “We put our earnings out as soon as we were aware.” Without providing further details, he said the breach was caused by an unlawful action that didn’t involve any unintentional disclosure by Intel.

An Intel spokesperson told Insider the company is investigating reports that non-authorized access may have been obtained to one graphic from its earnings report. 

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Intel’s fourth-quarter results exceeded investor expectations and beat the company’s own forecast on the back of strong PC sales. The chipmaker saw quarterly revenue fall 1% year-on-year to $20 billion, but still beat the $17.49 billion estimate of analysts polled by Refinitiv. Net income for the quarter came in at $1.52 per share, compared to $1.10 expected.

Intel’s shares closed up almost 7% at $62.46 on Thursday, but erased gains after the reported hacker’s access to information.

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