Intel CPU Shortages Predicted, AMD to Reap Benefit Amid Analyst Upgrades
J.P. Morgan (NYSE:JPM) yesterday indicated that it thinks Intel (NASDAQ:INTC) is in the midst of a chip supply shortage which is getting worse in an analyst note to clients. Gokul Hariharan wrote that:
Our conversations with PC vendors indicate that the shortage, which started in small magnitude in 3Q, has been progressively worsening and is likely to have the maximum impact in 4Q18
Before going on to say that “We expect this to affect both notebook and desktop PCs and likely to have a higher impact on commercial and high end consumer PCs, where using AMD or older Intel family of CPUs are more difficult."
JPM is predicting that this will hit both notebook and desktop PC sales coming up to the end of the year with Q4 PC shipments down by between 5 and 7 percent.
Intel 10nm Woes Strike Again?
Hariharan suspects that Intel has shut down some of its chip fabrication manufacturing facilities in the long awaited move to 10nm, a topic we’ve covered time and again including in Usman’s excellent piece here. Work of this nature of course takes time and is likely to be contributing to the supply squeeze which vendors are discussing with JPM. CNBC reached out to Intel on the back of the J.P. Morgan report and got an interesting statement in response with the company saying:
Customer demand has continued to improve over the course of the year, fueling growth in every segment of Intel’s business and raising our 2018 revenue outlook $4.5 billion from our January expectations. We will have supply to meet our announced, full-year revenue outlook and we’re working closely with our customers and factories to manage any additional upside.
So Intel is certainly confident in its revenue projections for the year and to be clear, it still regularly puts in numbers that AMD (NASDAQ:AMD) can only dream about, but that’s not really the question now is it. Meeting projections at this level is based on broad, cross-sector revenue and people are trying to ascertain whether chip supply is going to suffer. Intel can potentially pump its business for revenue from areas other than chip supply to hit its numbers.
There is also a question as to whether AMD is now better able to capitalise on its fabless setup than an Intel which is already 3 years behind schedule on its own target for 10nm. Suspicions are out there that the difficulties faced in 10nm will not carry over to 7nm, however if they do then Intel management must surely begin to question whether it should stick with its long term strategy of making its own chips. It's also worth remembering that 14nm was delayed and yields were poor which hit margins.
The cause is not lost yet but it would be a shame to see Intel have to embark on a painful multi-year contract with a failing spinoff fab in the same vein as AMD had to with Global Foundries. There is of course the option just to close the manufacturing business down but this would seem unlikely and also lead to huge costs like those Intel had to bear out of its last significant restructuring.
Intel is a behemoth and betting against it is probably not a great idea. 10nm will come (eventually) and when it does, expect Intel to have some significant performance to go along with it, but if you were picking a stock at this stage? It looks like there is probably more value yet to be realised in AMD than Intel.
AMD Stock Up Amid Hat Trick of Analyst Wins
It’s clear that AMD has been through the wringer in years gone by but with its turnaround plan in full swing, analysts are slowly jumping on-board as long term negative recommendations give way to market realities. More analysts still rate the stock as a hold or worse than don’t, but given the stock’s dizzying climb as it has focused on the CPU business where the money is (albeit to the detriment of its discrete graphics lineup), the last couple of years have seen them gradually getting aligned.
This week saw a triple, with Argus, FBN and Rosenblatt all upgrading the stock and slapping a $40 price target on it, representing an over 22% premium on yesterday’s closing price, itself a rally of over 7% after a similar drop the day before. I suppose an almost 200% gain on the year (while Intel is down almost 3% over the same period) means that the naysayers simply can’t justify the poor ratings that are out there anymore. Clients taking your advice will have lost out compared to the wider market at large that had AMD in its portfolio.
As a side note, Wccftech CEO and Editor in Chief Abdullah Saad was asked via Twitter recently whether he thought AMD is a buy. That prompted some interesting internal conversations within the Finance team where we came to the conclusion that we rate AMD a buy (price at the time was ~$25) and strongly believe that on current trajectory, the stock probably outperforms at least 2 of the PHLX Semiconductor index (INDEXNASDAQ:SOX), Nasdaq Composite (INDEXNASDAQ:.IXIC) and the S&P 500 (INDEXCBOE:.INX) over a 12 to 18 month horizon. It’s the first time the finance section has put a call out there in the public domain so will be interesting to watch how it evolves!
The finance section is agreed. We rate AMD a buy at current price and suspect it beats at least 2/3 of the phlx semi, s&p500 and Nasdaq benchmarks over 12-18 months, other factors remaining equal. No price target yet but we'll be modelling in future.
— Adrian Ip (@adeyip) August 28, 2018