Intel's Woes Are Cyclical Not Structural
While the uncertain economic environment appears to be causing a near-term cyclical slowdown at Intel, the headwinds are temporary, says Morningstar's Andy Ng.
While the uncertain economic environment appears to be causing a near-term cyclical slowdown at Intel, the headwinds are temporary, says Morningstar's Andy Ng.
On Friday, Intel (INTC) lowered its forecast for the third quarter, as macroeconomic weakness has been weighing on the microprocessor and PC markets. We are likely to lower our fair value estimate by 5%-10%.
Intel now expects revenue of $12.9 billion-$13.5 billion, down from a previous outlook of $13.8 billion-$14.8 billion. It forecasts a gross margin of about 62%, compared with the prior expectation of 63%. The firm attributed the reduced outlook to weaker-than-expected processor demand, as computer manufacturers manage chip inventories in the PC supply chain in response to challenging economic conditions. Additionally, Intel mentioned softness in the enterprise PC segment and slower demand from emerging markets, two areas that had been healthy in recent quarters. On a brighter note, the server processor segment has been meeting the firm's expectations.
While the uncertain economic environment appears to be causing a near-term cyclical slowdown at Intel, we believe the headwinds are temporary. The microprocessor market is notoriously cyclical and will ebb and flow with macroeconomic conditions over time. While weakness in global PC and microprocessor demand is certainly a negative for Intel, we are encouraged that the firm's server processor business is on track. We believe that segment will be the main growth driver for Intel in the coming years, as the proliferation of smartphones and tablets will continue to drive the buildout of the cloud infrastructure, which will propel demand for the firm's server chips.
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