Intel Corp. on Friday morning handed back a stock surge from the day before and then some, as strong results from the chip maker were overshadowed by the incoming chief executive’s announcement about manufacturing.
Pressure on shares started during Thursday’s conference call, when incoming CEO Pat Gelsinger walked back expectations that the company would rely on third-party manufacturers to make its chips. That conversation began back in July, when Intel said manufacturing issues would delay the release of its next-generation 7-nanometer chips and that it could use “somebody else’s foundry” to make the chips.
For more: Pat Gelsinger isn’t Intel’s CEO yet, but he is already rallying the troops
Unlike competitors Advanced Micro Devices Inc.
and Nvidia Corp.
Intel is an integrated device manufacturer, or IDM, a chip company that not only designs its chips but owns the manufacturing facilities where the chips are fabricated. AMD, Nvidia, and many other chip companies use third-party foundries like Taiwan Semiconductor Manufacturing Co.
to manufacture their actual chips. And those foundries are already struggling to keep up with demand, likely prompting TSMC to significantly boost capex spending in 2021.
Analysts still boosted their outlooks on the companies thanks to the strong fourth-quarter numbers, with 17 of them increasing their price targets Thursday morning and only one bringing a target lower. That resulted in the average price target rising to $62.36 from $57.81 before earnings, as prices fell the other way on Wall Street.
Susquehanna Financial analyst Christopher Rolland, who has a neutral rating and a $60 price target, said “Gelsinger’s IDM commentary may have caught some off-guard,” even with the strong results.
“The Intel debate increasingly culminates around a simple question… how quickly can Intel close their process technology disadvantage?,” Rolland said. “While a foundry approach was likely to close that gap more quickly, the commentary and tone of tonight’s call seemed to suggest that incoming CEO Gelsinger may favor a more IDM-centric approach. “
“Additionally, the great attention, focus, and time required to ‘fix manufacturing’ may push Intel even further behind on a meaningful foundry transition, resulting in even more share losses to competitors,” Rolland said. “While we remain somewhat pessimistic Gelsinger can restore Intel to manufacturing prominence, we do believe it’s ultimately worth a try as the prize is so great.”
Full earnings coverage: Intel’s incoming CEO addresses manufacturing plans
On the other hand, Cowen analyst Matthew Ramsay, who has an outperform rating and a $79 price target, said he didn’t place much stock in Intel outsourcing manufacturing in the first place.
“We are encouraged to hear that Intel was able to re-architect the 7nm sequence that was causing defects, while simplifying and streamlining the process over the last six months,” he said, adding that “going fabless or fab-lite was neither practical competitively, operationally, or politically and therefore was never really on the table; therefore, the importance of significant and sustained investment in internal 7nm and 5nm road maps is critical.”
Jefferies analyst Mark Lipacis, who has a hold rating and a $57 price target, said he noticed an unspoken delaying of Intel’s 7-nm schedule on the call.
“When Intel announced in July 2020 that its 7nm transistor road map had slipped, it noted the possibility of shipping 7nm client CPUs by late 2022/early 2023, and that 7nm server CPUs would ship in 1H23,” Lipacis said. “On this earnings call the company only mentioned shipping 7nm CPUs in 2023. This seems like another slip in the 7nm schedule to us.”
For more: How did Intel lose its Silicon Valley crown?
“We think Intel is two years behind TSMC on transistors on 7nm, and catching up is both a long shot and long journey,” Lipacis said. “We think there is no easy or quick fix for Intel, and expect continued share loss in 2021.”
Citi Research analyst Christopher Danley, who has a neutral rating and a $55 price target, expressed concern that Intel’s data-center segment was under pressure and losing share to AMD.
“We expect this trend to continue until Intel fixes its manufacturing woes and has competitive server products ramping in high volume,” Danley said.
Evercore ISI analyst C.J. Muse, who has an in-line rating and a $68 price target, said Intel has become a widely debated “battlefield” stock, and that he’s sticking to his in-line rating as changes are expected to come slowly.
“On one hand, clearly a strong franchise capable of generating meaningful cash flows, particularly when PCs are in high demand like today (which btw supported a blowout December Q and a strong March Q guide),” Muse said. “On the other hand, a company facing competitive pressure from AMD/TSMC as well as new, non- X86 entrants into the compute landscape. “
Of the 38 analysts who cover Intel, 13 have buy ratings, 16 have hold ratings, and nine have sell ratings, according to FactSet data.