Chips are Down for Intel

08/21/2018 5:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Intel (INTC) shares have slumped 9% since July 26, when the company said its next generation of semiconductors will be postponed until late 2019 for personal computers and 2020 for data centers, asserts Richard Moroney, editor of Dow Theory Forecasts.

The launch date for new semiconductors, once slated for release in the first half of 2018, has now been pushed back at least three times. The latest warning sparked a flurry of analyst downgrades on concerns the delay will endanger Intel’s dominant position in the data-center space.

Compounding Intel’s problems, rival Advanced Micro Devices (AMD) expects to launch its upgraded semiconductors next year. Desperate to hold on to its 97% share of the server-chip market until the 2020 launch, Intel plans to equip existing semiconductors with new memory technology.

The data-center market is driving Intel’s operating growth, while PC demand remains sluggish. Accounting for about 30% of Intel’s sales, the data-center segment posted 25% higher revenue in the first half of 2018, on top of 11% growth in 2017.

Along with Nvidia (NVDA), Intel is also carving out a slice in the nascent market for artificial-intelligence (AI) semiconductors. Intel said sales of AI chips totaled about $1 billion last year, representing less than 2% of its revenue.

Even with Intel’s product delay, the consensus profit estimate for 2019 has actually risen over the past 30 days. Expectations still seem modest, with the consensus targeting just 3% growth for both per-share profits and revenue.

At 11 times estimated 2019 profits, Intel trades 28% below the median for S&P 1500 semiconductor stocks. Based on its trailing P/E ratio, Intel looks unusually cheap versus peers. The shares trade at 12 times trailing earnings, 60% below the average S&P 1500 semiconductor stock.

Intel has offered a higher discount to its industry group in fewer than one-quarter of month-end periods in the past 10 years. Intel remains a Long-Term Buy.

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