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With one of the more crucial earnings seasons underway, financial firm Bernstein is out with a scathing note. Bernstein, which downgraded AMD's share price target earlier today, accuses Intel of using its scale and scope to dominate retail shelf space for its products, even at a time when the personal computing market is facing inventory problems and demand is low as consumption adjusts to inflation and the post-pandemic era. The note by analyst Stacy Rasgon says he was too optimistic about AMD's ability to weather slower channel shipments and that the stock might not perform well until investors can gauge its proverbial 'bottom.'
Intel Is In 'Self Destruct' Mode Says Bernstein Analyst
If there's one thing for certain, it's that the earnings of major chip companies, two of which are due later this month, won't paint a pretty picture. The semiconductor sector has faced a historic downturn in 2022, when rising inflation and demand distortions following the coronavirus pandemic lead to the double-edged sword of companies ordering too much only to be surprised when the demand failed to materialize.
This ended up hurting the income statement heavily, as Intel, AMD and NVIDIA all reported massive sales drops. At the same time, executives of the Taiwan Semiconductor Manufacturing Company (TSMC) lamented that the demand forecasts that they had received at the start of 2022 ended up being vastly different than the orders that had materialized - causing them to book more capacity than was used.
With these details in mind, Bernstein's latest analyst note, which cuts down AMD's share price target by almost 16% is particularly unforgiving regarding Intel. According to him, Intel is deliberately flooding the market with personal computing products, even when it knows retailers have excess inventory.
According to Rasgon, Intel is in "semi-destructive" behavior as:
they [Intel] use both price and capacity as a strategic weapon, continuing to overship even amid broader breakdowns in the industry.
. . .[Intel knows] the channel is full, but seem to have decided that if there are parts on the shelf it might as well be their parts...Naturally this will hurt Intel as well, but as their economics are already in free fall perhaps they don't care as much anymore.
Out of the three semiconductor firms Intel, AMD and NVIDIA, only NVIDIA might see some stability in its earnings, according to detailed coverage from KeyBanc. Otherwise, all three will post lower earnings guidance during the upcoming calls. However, Keybanc is more optimistic about AMD, as it believes that the company will steal more market share away from Intel this year in the data center space and might even end up controlling one third of the market by year end.
For Intel, the weak personal computing market will lead to a challenging first quarter, with the best estimates only expecting results that are in line with previous reports. Channel inventory is the central issue in the semiconductor industry right now, with new products from NVIDIA and AMD struggling to navigate them. To ease some of these problems, the firms have started to offer rebates.