INTC : NASDAQ : US$22.86
HOLD
Target: US$20.00
COMPANY DESCRIPTION:
Intel Corporation is the world’s largest semiconductor chip maker, in terms of revenue. The company develops advanced integrated digital technology platforms and components, primarily integrated circuits (ICs), targeted at the computing and communications industries.
Semiconductor Devices and Related Technologies
PCs TO END 2013 WITH A WHIMPER AS CANNIBALIZATION BY TABLETS CONTINUES
Investment recommendation
We are lowering our estimates for Intel and reiterate a HOLD rating based on weakness in the electronics supply chain that points to a steepening decline for PCs in 2013. Display suppliers, notebook ODMs and distributors all point to 2H weakness, especially for notebooks, whose units drive roughly two-thirds of the PC market. Notebook weakness stems from competition from iPad and other tablets, and with new launches from Apple and others, we expect the cannibalization trend to continue.
Strong iPad5 push to accelerate PC Cannibalization
We believe tablet refreshes by Apple and the proliferation of low cost tablets in China point to continuing and perhaps accelerating cannibalization of notebooks. We expect the PC market to decline by 10% in 2013 and another 4% in 2014. The iPad5 (launching mid-October) appears to be a true redesign with a thinner form factor and we note that build forecasts for this device have edged higher for Q3 and Q4. While changes to mix could be driving the forecasts higher, we believe a thinner design could serve to divert demand from higher end consumer notebooks. Meanwhile, at the low end of the price spectrum, the China white-box tablet market is seeing strong demand, growing from roughly 50 million units in 2012 to nearly 100 million in 2013. Most of these tablets are for the consumer market with prices ranging from $50-$100 USD.
Valuation
INTC’s price target of $20 is 11x our C2014 EPS estimate of $1.79 plus net cash of $0.83/share.
