On Friday, Raymond James adjusted its stance on Intel Corporation (NASDAQ:INTC), moving the chipmaker's stock from an Outperform rating to Market Perform. The firm expressed concern over Intel's third-quarter outlook, which was weaker than anticipated, especially regarding gross margins.
The downgrade follows Intel's report of a 480 basis point gross margin miss, attributed to several factors, including the accelerated shift of wafer production to a higher-cost facility in Ireland—a move likely tied to the conditions of the Apollo investment.
The analyst at Raymond James noted that the growth in AI PCs is proving to be a more significant challenge to margins than expected. The costs associated with outsourcing wafers are eroding the benefits of modest average selling price (ASP) premiums.
Despite these challenges, there were positive aspects mentioned, such as Intel's process roadmap being on schedule, with the completion of 1.0PDK for 18A, and the company's solid balance sheet. Intel's aggressive cost-cutting measures are also expected to help limit cash burn.
However, the analyst cautioned that gross margin headwinds are likely to continue through 2025, with limited opportunities for revenue growth in the near term. This outlook suggests that profitability could remain under strain for an extended period.
The report concluded with a recognition of Intel's current low valuation, trading at less than one times price-to-book (P/B), and the potential for significant value to be unlocked through a possible Foundry business separation. Despite these factors, Raymond James has decided to adopt a neutral position on Intel shares for the time being.
In other recent news, Intel Corporation has reported a series of significant developments. The company has announced plans to reduce its workforce by 15% and suspend its quarterly dividend starting in the fourth quarter.
This decision is part of a strategic shift focusing on its underperforming manufacturing operations. Intel's third-quarter revenue is projected to fall between $12.5 billion and $13.5 billion, reflecting the challenges it faces in a competitive and evolving semiconductor industry.
In response to these challenges, Raymond James has downgraded Intel's stock from an Outperform rating to Market Perform due to concerns over the company's third-quarter outlook. The firm highlighted the company's gross margin miss and the potential for continued margin headwinds through 2025.
Despite these concerns, Intel's process roadmap is reportedly on schedule, with the completion of 1.0PDK for 18A and aggressive cost-cutting measures expected to limit cash burn.
In addition to these financial adjustments, Intel has announced the development of an optical compute interconnect (OCI) chiplet, aimed at enhancing data processing speeds within AI infrastructure. This aligns with the company's ambition to reach $1 billion in cumulative software revenue by 2027.
Furthermore, Intel's subsidiary, Mobileye, is expanding its technology partnership with Zeekr, a premium electric mobility brand, to accelerate the localization of Mobileye's technologies in China and integrate them into future Zeekr models for the global market. These are the recent developments concerning Intel Corporation.
InvestingPro Insights
Intel Corporation's (NASDAQ:INTC) current market dynamics and financial metrics provide additional context to Raymond James' recent rating adjustment. According to real-time data from InvestingPro, Intel's market capitalization stands at $123.66 billion, reflecting its significant presence in the semiconductor industry. The company's Price/Earnings (P/E) ratio, as of the last twelve months leading up to Q1 2024, is 29.48, which is considered low relative to its near-term earnings growth. This aligns with an InvestingPro Tip that highlights Intel's trading at a low P/E ratio, hinting at potential undervaluation.
Another InvestingPro Tip emphasizes Intel's status as a prominent player in the Semiconductors & Semiconductor Equipment industry, which is reinforced by the company's ability to maintain dividend payments for 33 consecutive years, showcasing its financial resilience and commitment to shareholder returns. The dividend yield as of May 2024 stands at 1.72%, with the company's stock trading near its 52-week low, which could be an indicator for value investors.
Despite a modest revenue decline of 2.09% over the last twelve months as of Q1 2024, Intel has shown a quarterly revenue growth of 8.61%, suggesting a potential turnaround in sales. Additionally, the company's gross profit margin remains robust at 41.49%, although the gross margin miss in the third quarter has raised concerns.
For investors seeking deeper insights, InvestingPro offers additional tips on Intel Corporation, providing a comprehensive view of the company's financial health and market position. These tips can be explored further to make informed investment decisions.
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