Investors in Intel (NASDAQ:INTC) watched their fortunes plummet following the company’s Q2 earnings call on Thursday after the close of the markets. INTC shares fell close to 9% on Friday, not exactly a resounding endorsement.
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To be fair, there were some successes, as Intel’s Q2 revenues of $12.9 billion surprised on the upside. EPS, however, came in at -$0.10, much lower than the projections of $0.01 for the quarter — which the company blamed on expenses related to “onetime items and impairments.”
CEO Lip-Bu Tan also shared that the company has been reevaluating its capex spending, and will be suspending various projects in Germany, Poland, and Costa Rica. There is no doubt that major changes are underfoot at Intel, which has been implementing large rounds of layoffs towards its goal of having 75,000 employees by the end of the year.
One top investor known by the pseudonym JR Research applauds the CEO’s “pragmatic approach.” Nevertheless, the 5-star investor points out that there is no magic formula for Intel.
“CEO Lip-Bu Tan is no magician. He has to undo years of poor execution, strategic missteps, and a bloated internal bureaucracy, while facing extremely competitive and capable rivals in the semiconductor industry,” states the 5-star investor, who is in the very top 1% of TipRanks’ stock pros.
JR explains that the company is on an “arduous journey” to unseat Taiwan Semiconductor’s primacy in the foundry business. The investor points out that TSM has a massive leg up on Intel, so much so that companies like AMD believe that the 5% to 20% premium they could be paying for TSM’s Arizona-manufactured chips over its Taiwan-produced hardware is “worth it.” (JR reminds investors that Intel is based in the U.S. – “what a pity!”)
“Intel isn’t anywhere close to winning enough business for the 14nm process to justify expanding aggressively now to compete with TSM,” adds JR.
Intel can trumpet some positives, such as its 55% share of the server market, a signal that the company retains some of its historic cache. JR also points out that Intel’s demise could be averted if it succeeds in executing well on its 18A process.
For now, though, JR remains cautious.
“With structural constraints hampering its execution, Intel’s hard times aren’t expected to be over anytime soon,” sums up JR Research, who is maintaining a Hold (i.e. Neutral) rating. (To watch JR Research’s track record, click here)
That’s exactly where most of Wall Street finds itself as well. With 26 Hold ratings – and only 1 Buy and 4 Sell ratings – INTC has a consensus Hold rating. Its 12-month average price target of $22.16 has an upside of ~7%. (See INTC stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.