Intel’s Restructuring and Disappointing Earnings Spark Analyst Downgrades
Intel Corp INTC is facing a period of significant change and uncertainty after announcing a major restructuring plan and reporting disappointing quarterly earnings. The company reported an earnings per share of just 2 cents, falling dramatically short of analysts’ expectations of 10 cents. This represents an astonishing 84.62% decrease from the same period last year. In response, the tech giant has unveiled a $10 billion cost-reduction effort aimed at streamlining operations and reducing its workforce by over 15%, with most of the cuts anticipated by the end of 2024. Furthermore, Intel will suspend its dividend starting in Q4 2024.
This news has sent shockwaves through the industry, leading analysts to re-evaluate their outlook on the company. While some remain cautiously optimistic, several have downgraded their ratings and price targets, highlighting the challenges Intel faces in regaining its competitive edge.
Key Takeaways:
- Earnings miss: Intel reported earnings per share of just 2 cents, significantly lower than analyst expectations of 10 cents.
- Major restructuring: A $10 billion cost-reduction plan aims to streamline operations and cut headcount by over 15% by the end of 2024.
- Dividend suspension: Intel will suspend its dividend starting in Q4 2024.
- Analyst downgrades: Several analysts have downgraded their ratings and price targets for Intel stock, reflecting concerns about the company’s future.
- Focus on competition: Analysts are pointing to concerns about Intel’s struggle to compete with agile fabless and foundry rivals, particularly in the data center segment.
BofA Securities: "No Quick Fix, Downgrade to Underperform"
Vivek Arya of BofA Securities has downgraded Intel to Underperform with a price target of $23, down from $35. He believes that the restructuring plan, while necessary, fails to address Intel’s deeper competitive and strategic challenges. "We don’t see a quick or easy fix to competitive, financial, strategic, and manufacturing risks," Arya stated. His concerns center around Intel’s struggle to compete effectively against fabless and foundry rivals, a challenge that he believes will impact the company’s profitability for years to come. Arya’s revised forecasts indicate a 75% reduction in EPS estimates for 2024, reflecting his pessimistic outlook on the company’s future.
Cantor Fitzgerald: "A Perfect Storm, Reiterates Neutral"
C.J. Muse of Cantor Fitzgerald maintains a Neutral rating on Intel but has lowered his price target to $27 from $40. He calls the situation a "perfect storm" for the company, highlighting the impact of transitioning Meteor Lake to Intel’s new manufacturing line as a significant factor in the company’s margin issues. While acknowledging the restructuring and cost-cutting measures, Muse remains cautious, emphasizing that the success of Intel’s strategic plans will be critical for the company’s recovery. "The magnitude of the sell-off after-hours is no surprise," Muse remarked, recognizing the market’s strong reaction to Intel’s announcement.
Wedbush: "Another Reset to Expectations"
Matt Bryson of Wedbush Securities maintains a Neutral rating with a 12-month price target of $25, reduced from $32.50. Bryson expected mixed results but was struck by the extent of the earnings miss. He shares concerns about Intel’s ongoing technological transitions, highlighting them as a significant source of uncertainty for the company. "We are retaining our NEUTRAL view, while reducing our PT in-line with our now lower estimates," Bryson said. He believes that Intel needs to demonstrate tangible progress in its strategic initiatives to regain investor confidence.
Goldman Sachs: "Sell on Data Center and Margin Concerns"
Toshiya Hari of Goldman Sachs reiterates his Sell rating on Intel, lowering his price target to $22 from $29. Hari cites ongoing challenges in Intel’s Data Center business and negative margin revisions as reasons for his bearish stance. "We do not consider [the restructuring] to be sufficient for a sustained recovery in the company’s competitive position," Hari commented. He believes that the restructuring efforts may not be enough to address the core issues facing the company. His revised EPS estimates reflect a 63% reduction for 2024, highlighting the significant challenges Intel faces in regaining market share, particularly in the data center segment.
Truist Securities: "Hold Rating Unchanged Amid Challenges"
William Stein of Truist Securities maintains a Hold rating with a price target of $25, down from $33. Stein acknowledges the significant restructuring but remains cautious about Intel’s long-term prospects. "The LT story of eventual product and process superiority and the ramping profitability of a foundry business persist, but are ever more challenging to envision," Stein said. While he acknowledges the potential for future success, he believes the path to recovery is uncertain.
Roth/MKM: "Neutral with Lowered Price Target"
Suji Desilva of Roth/MKM retains a Neutral rating, lowering the price target to $25 from $35. Desilva notes that while there is a healthy demand for client processors, Intel’s higher costs and need for new products in the data center segment pose significant challenges. "We lower our price target from $35 to $25 and maintain our Neutral," Desilva concluded. She recognizes the strong demand for client processors as a positive factor, but believes that the company’s challenges in the data center segment will continue to weigh heavily on its overall performance.
Intel’s dramatic restructuring and disappointing earnings have generated a wave of analyst downgrades and revised price targets. While the company’s cost-cutting efforts are considered necessary, the path to recovery remains unclear and fraught with challenges. Investors are intently watching how the company navigates this turbulent period and whether its strategic initiatives will ultimately lead to a turnaround. The future of Intel hinges on its ability to regain its competitive edge and demonstrate a clear path to profitability.
