Intel plummets as analysts downgrade chip giant after 'below standard' quarter
David Ramos

Intel (NASDAQ:INTC) shares plummeted more than 10% on Friday after the chip giant reported a quarter that Chief Executive Pat Gelsinger said was "below the standards we have set for the company and our shareholders," prompting several downgrades from Wall Street analysts. 
Baird analyst Tristan Gerra downgraded Intel (INTC) shares to neutral from outperform and cut the price target to $40 from $60, noting that the company suffered from weakening consumer demand for PCs, something that is not likely to change anytime soon. 
"Shift in consumer patterns away from COVID-times at home entertainment devices, combined with weak first-half seasonality, suggests no PC recovery near-term, with resulting under-utilization rates challenging gross margin recovery," Gerra wrote in a note to clients. The analyst added that delays in Sapphire Rapids and Intel's (INTC) product mix should benefit Advanced Micro Devices (NASDAQ:AMD) in the server market in the second half of the year.
For the period ending July 2, Intel (INTC) said it earned an adjusted $0.29 per share on $15.3B in revenue, down 17% year-over-year. Data Center revenue fell 16% year-over-year, while the company's largest segment, Client Computing, accounted for $7.7B in sales, down 25% year-over-year.
Looking ahead to the third quarter, Intel (INTC) said it sees revenues between $15B and $16B, well below the $18.67B analysts were expecting. Non-GAAP gross margins are expected to be 46.5%, with earnings per share of $0.35.
Santa Clara, California-based Intel (INTC) also lowered its full-year outlook for sales to be between $65B and $68B, compared to a previous outlook of $76B. Analysts were expecting $74.76B for full-year revenue.
Gelsinger also said Intel (INTC) would lower its spending and expenses for the remainder of the year, citing ongoing economic weakness and a 10% decline in the PC market.
Susquehanna analyst Christopher Rolland cut his rating to negative from neutral, noting that Intel (INTC) is facing several "long-term headwinds," including servers moving to Arm, as well as Arm taking more market share in PCs, with Apple (AAPL) expanding their M-series to "fully replace" Intel. 
Additionally, Advanced Micro Devices (AMD) is likely to keep gaining share in the PC market, albeit at a slower pace than in the past few years. And AMD's (AMD) server share is likely to accelerate with the launch of 5nm Genoa, expected to beat the aforementioned Sapphire Roads to market, something that may not happen until next year. 
Other risks to Intel (INTC) include the continued push-out of its product roadmap, with potential delays for Granite Rapids and Meteor Lake; gross margin pressure as the company spends to move to more complex geometries and competition gets greater; a "[work from home] hangover," leading to the PC market being smaller than believed; and a "growing mismatch" between earnings and free cash flow per share. 
"For decades, Intel was able to cover up a litany of failed projects, poor acquisitions, and strategic foibles by pushing Mooreâs Law and process leadership," Rolland wrote in a note to clients. "Unless they regain this leadership (we think unlikely), or change strategic direction, we expect growth, profitability, and cash flow problems to persist at Intel." 
Barclays Capital analyst Blayne Curtis did not downgrade Intel (INTC), but noted the firm has had an underweight rating on the company for four years and it doesn't "see the path forward with such roadmap, strategy, and market struggles."
On Thursday, the House of Representatives passed the CHIPS Act, praised by Intel (INTC) and others, and now the bill will go to President Biden to be signed into law.
Analysts are lukewarm on Intel's (INTC) prospects. It had an average rating of BUY from Seeking Alpha authors, while Wall Street analysts rate it a HOLD. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates INTC a HOLD.