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After it released its earnings report for the second quarter of the fiscal year 2022 earlier this week, chip maker Intel Corporation is the subject of some hard hitting analyst coverage from a host of Wall Street firms. Intel's latest earnings saw the company's revenue and net income annually drop by 22% and 109% respectively, with its management attributing the low revenue to the current economic downturn and the net loss to high capital expenditure as it looks to regain chip manufacturing process technology leadership and establish itself on a solid footing in the contract chip manufacturing industry.
After the earnings, Wall Street analysts almost unanimously downgraded Intel's share price targets and posted notes with a variety of criticisms. One of these came from Northland, who expressed surprise at Intel's apparent unpreparedness for the disappointing earnings report
Intel Should Have Preannounced Q2 Results Says Northland Analyst
At least seven Wall Street analysts that cover the semiconductor industry downgraded Intel's share price the day after the Q2 2022 earnings report was released. The lowest of these came from Rosenblatt, which slashed its price target by $10 to $30, called the earnings an "unmitigated disaster" and also questioned why the results were not preannounced. The analyst also cautioned that Intel's data center market will suffer for years to come.
The second lowest price target came from the research firm Susquehanna, which reduced it to $33 from $40 and stated that despite a desire to believe that the earnings report was a one time occurrence, there are persistent problems with Intel's business model that merit caution for years to come. These include the growing popularity of Arm based data center processors, AMD's rapid rise in the personal computing space and heavy capital expenditure that will continue to dent net incomes in the backdrop of the risks of recession contracting the personal computing market.
Northland analyst Gus Richard has the highest price target for the company in our sample today, as he reduced it from a previous $62 to a more modest $55. However, in his comments, Richard took the company to task as he stated that the earnings report was inexcusable. The analyst went on to add that the unforgivable earnings report questions the ability of the company to handle its investor relations and shows that perhaps Intel lacks the ability to forecast its results ahead of time since it had failed to preannounce the earnings.
However, Richard maintained a moderate tone of optimism for the company, as he stated that he expects Q2 and Q3 to be the worst for Intel and that the results are unsurprising given the historic turnaround that the company is attempting.
Joining the choir was Jefferies, which laid down a base case of Intel losing market share to both NVIDIA and AMD in the PC, server and data center markets. For the upsides, the research firm noted that a fabless model, process technology execution and a potential AMD mis-execution can breathe fresh life into the company. Over the long term, Jefferies outlined that the growing shift to Arm is a significant threat for Intel, and that in its opinion, the best long term strategy for Intel will be to switch to a fabless model through a joint venture with the Taiwan Semiconductor Manufacturing Company (TSMC). In such a scenario, Intel would be best suited to split capital expenditure with the U.S. government and TSMC, as well as offer joint foundry services.