Intel Stock (NASDAQ:INTC)
Several Wall Street analysts had a muted and varied response to Intel’s (NASDAQ:INTC) latest report on its foundry services division.
Even if the economics of the foundry appears “unsurprisingly horrible” right now, according to Bernstein analyst Stacy Rasgon, who has a market perform rating and a $30 per share price objective on Intel stock, Intel is aware that it has to create a “structurally more efficient cost structure.”
Intel has said it will cut $8B to $10B in costs from the business, including about $3B this year. However, as noted by Rasgon in an investor note, “Up until this point, we have been unclear where those [cost of goods sold] savings are coming from (or indeed, whether the company even knew).
“However, they did find, at a high level, several efficiencies (expedites, sampling, test times, architecture, etc.) and more (utilizations, steppings, etc.) that they think can account for $4–5 billion and don’t seem to depend on revenue too much.”
After falling by 6% on Wednesday, Intel stock fell by more than 1% at midday on Thursday.
Rasgon said this would help Intel (NASDAQ:INTC) increase its gross margins by about 10 percentage points. However, it still would need to reach the company’s target of 60%. However, with so many inefficiencies still present, simply recognizing and acknowledging the gap between Intel and its rivals is “probably a healthy exercise.”
As Wells Fargo analyst Aaron Rakers noted, investors may have been disappointed that Intel (NASDAQ:INTC) did not reveal any new foundry clients during the event.
The event made Rakers, who has an equal weight rating on Intel stock, “incrementally positive” on its approach, particularly after hearing the specifics of the cost reductions. However, he did add that “a lot of execution uncertainties remain.”
According to Bernstein’s Rasgon, the stock’s significant drop on Wednesday may have been partly due to the absence of a foundry client news; however, management has hinted that such an announcement may be made in the year’s second half.
Although we found their reflection of their position refreshing and their greater openness on cost drivers somewhat promising, we anticipate investors found the event disappointing due to the absence of customer announcements, as Rasgon put it.
Featured Image: Unsplash @ Slejven Djurakovic
Author Shariq Khan 
