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Intel Roundup: Downgraded, CEO Search, Baidu Win, Apple Loss

Sejuti Banerjea
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The top stories for Intel INTC stock are related to recent analyst downgrades, updates on its CEO search, a strengthening relationship with Baidu BIDU and the possibility of an iPhone loss.

Analysts Downgrade Intel

The CEO departure saw a number of analysts weighing in on Intel.

Bernstein analyst Stacy Rasgon downgraded the stock to underperform while lowering the price target from $54 to $42. He said he regretted his earlier upgrade because the structural issues he pointed out earlier were becoming all the more obvious and the CEO departure just increased uncertainty. Add to that the difficult comps coming up in 2019 and the stock didn’t look at all attractive.

On the positive side, Bernstein analyst Mike Burton believes that Intel has an advantage with respect to data center architectures given its investments in NAND/XPoint and the Atera acquisition. He did mention some tough competition though from NVIDIA and others.

Benchmark analysts initiated with a Hold rating, calling out Intel’s CEO resignation and competitive threats while expressing optimism about its “compelling story.”

Romit Shah of Nomura Instinet downgraded Intel from Buy to Hold and lowered his price target from $60 to $55. He said that it was very difficult for him to believe that the board would let the CEO go on something that happened 10 years ago and there were plenty other factors that warranted his resignation.

Krzanich may have done some good as far as revenue and margins were concerned, but it was in his regime that Intel lost its manufacturing lead, gave up some data center processing advantages and admitted that it would lose an unspecified amount of market share to AMD. It also fell back in AI and machine learning. However, the lack of leadership at the company was a concern and it didn’t appear likely that it would gain investor confidence if it didn’t look outside to fill the position.

New CEO Speculation

Diane Bryant, former COO at Google Cloud, has resigned after just seven months in her new position. Google has confirmed her departure, so this part isn’t speculation. But since information about her future plans isn’t readily available, there’s a ton of speculation that she’s headed for the top job at Intel. And there’s good reason for this-

Bryant is an Intel veteran having served at the company for around 20 years, most recently, as its head of data center operations. She reportedly played an important role in making Intel a data-first company and was one of the front-runners for the position five years ago. But Krzanich was chosen instead and she became one of high-profile executives to depart.

Today, the "data-centric” businesses (IoT, data center and programmable chip units) account for about half of Intel’s annual revenue.

If all of the above reasons aren’t good enough to get her back, there’s also the consideration that she being a woman, will also be good for Intel’s diversity numbers.

Wins Baidu in AV, Expands AI Relationship

Chinese search leader Baidu and Intel made some important announcements at Baidu Create, the company’s inaugural artificial intelligence conference.

The first was in relation to Baidu’s incorporation of Mobileye’s Responsibility Sensitive Safety (RSS) software in its Apollo self-driving platform and deployment in its commercial Apollo Drive program. Project Apollo is an open source system that auto players can adopt to quickly get into the self-driving space. It has attracted 116 global partners since its launch a year ago. Baidu’s vetting is important because of its close ties with Chinese automakers as this can also help Intel gain their confidence.

The thinking goes that including Intel’s deterministic software (RSS) as a layer above the artificial intelligence powered system will increase the safety of self-driving vehicles. What this means is that while the AI-powered system has to follow a logical reasoning pathway, some things that we already know to be true can be added to the system as a bit of already-processed information (or a given), thus increasing accuracy and speeding up decision-making. So for instance, the system incorporates safety protocols like maintaining a certain distance behind cars and giving rather than taking the right-of-way.

Baidu is also endorsing its visual perception solution called Surround Computer Vision Kit, a system of 12 cameras that feed data into Mobileye’s computer vision hardware and software platform. Alphabet’s GOOGL Waymo uses a platform that combines camera and LiDAR systems while Apple’s AAPL published research indicates another camera-only solution.

In the words of Baidu executive Weihao Gu: “Project Apollo will integrate RSS to successfully enable safe driving today, and drive further autonomous research on China’s roadways.”

The second announcement was that Baidu has also incorporated Intel’s Movidius Myriad 2 vision processing unit (VPU) in its artificial intelligence-powered Xeye camera for retailers. So Intel VPUs will work along with Baidu ML algorithms to detect people, objects and movements/gestures and interpret them using AI.  The end result will be an improved shopping experience.

Third, Intel field-programmable gate arrays (FPGAs) will now be offered on a workload-acceleration-as-a-service basis on the Baidu Cloud. Moreover, Baidu’s deep learning platform PaddlePaddle has been optimized for Intel Xeon Scalable processors.

Apple Dropping Intel Chips

There are fresh rumors unconfirmed by Apple about its moving away from Intel 5G chips in its MacBook lineup. The chips in question are codenamed Sunny Peak and they were intended for Apple devices coming to market in 2020. The rumors say that Intel has shut down this program and transferred employees elsewhere since Apple was supposed to be the main buyer. Somewhat contrarily, they also say that Intel is doubling down on the next product family targeting Apple’s 2022 devices.   

If true, it wouldn’t be unexpected since Apple has greatly increased its chip expertise in recent years and currently makes many of its chips in-house.  Since last year, the company has also started making its own graphics chips.

Vertical integration has always been a focus area for Apple, helping it decide its own product cycles and squeeze out costs, while making its offerings faster, sleeker and more efficient. In this case, it would finally enable Apple to have apps that run across its family of devices. Thus far, there has been more app development on iOS than MacOS, so bringing iOS to Macs could be a good idea.

But it won’t happen without challenges, not the least of which will be product transition issues, especially given Mac’s largely enterprise clientele. Even if it is able to market the advantages of the transition, it will be technically difficult to achieve Intel-like power right off the bat.   

For Intel, Apple is not a major customer, contributing less than 5% of its revenue. So there isn’t any major threat to the company. So Intel’s statement, which reads, “Intel’s 5G customer engagements and roadmap have not changed for 2018 through 2020. We remain committed to our 5G plans and projects,” makes sense.

 

Recommendation

Intel shares carry a Zacks Rank #1 (Strong Buy). Other tech companies with a buy rank are Western Digital Corp. WDC, Internet Initiative Japan IIJI, Dell Technologies (DVMT), Cyberark Software CYBR and Sytel SYNT. You can also see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

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