Oct 8, 2012
4:37 PM Intel: Bernstein Says Sell, ASPs Set to Decline
By Tiernan Ray
Bernstein Research’s Stacy Rasgon this afternoon cut his rating on shares of Intel (INTC) to Underperform from Market Perform, and cut his price target to $20 from $24, warning that the company is about to run out of “upside” in the prices it commands for its microprocessors, a phenomenon that has helped the company to sustain revenue growth in recent years, he argues.
In particular, Rasgon posits that Intel has had a better mix of SKUs in recent years, with lower consumer sales and more corporate sales, and a shift to the higher end of its processor lineup, and that things could shift back the other way, unfavorably:
Solid success from their “Good/Better/Best” strategy around Core i3/5/7 products. In fact, the company has seen significant mix shift toward Core i5 […] We believe there is material risk of Intel’s notebook SKU distribution shifting back in favor of Core i3 products over the next 12-18 months given a push to bring Ultrabooks down to true mainstream price points (almost all of which so far utilize Core i3 processors) […] We believe such a mix shift could drive a 7-10% decline in mainstream notebook ASPs for Intel in 2013.
Rasgon is modeling a decline in average selling price from $94.17 this year to $88.84 next year, and $85 in 2013, and slightly higher if one excludes sales of the cheaper “Atom” line of processors.
He’s modeling shipment growth of 2.4% this year, excluding Atom, and 2% next year. That leas to revenue this year of $53.92 billion and revenue next year of $54.22 billion, and gross margin of 62% this year and 60.5% next year.
Rasgon points out that he’s not negative about the current quarter. In fact, his estimate, $13.23 billion and 49 cents a share, which is about in line with the Street. For Q4, he’s modeling $14.29 billion and 60 cents, which is actually higher than the consensus $13.8 billion and 55 cents.
Rather, “this call is on longer term fundamental trends that we see impacting Intel over the next year which should lead to underperformance in the stock.”
Rasgon maintains an Outperform rating on Advanced Micro Devices (AMD) shares, arguing “Here we have the curious situation that arises often in investing – namely, separating good companies from good stocks. Intel is certainly the former but may not be the latter; AMD (while certainly risky) may be, we believe, the reverse.”