Intel: Buy the Resilience, Says Bulls; New Normal, Say Bears

Shares of Intel (INTC) are up 62 cents, or 2.4%, at $26 following last night’s in-line Q2 revenue report and cut in the company’s year outlook.

Revenue in the quarter fell below the mid-point of the range that Intel originally offered in April as a result of weakness in the NAND flash memory chip market. However, the reduced outlook for this year, with sales growth of perhaps 3% to 5%, was a result of macroeconomic worries that are hitting PC growth in mature markets, CEO Paul Otellini said.

The company’s server chip business saw revenue rise by 15%, helped by the “Romley” processor introduction in the Spring. That was a clear positive that was widely cited in notes this morning.

Although Otellini remarked that Intel had taken share from competitor�Advanced Micro Devices�(AMD), AMD’s stock is doing alright today, rising 7 cents, or 1.4%, to $4.94. Moreover, PC-related stocks are faring well, including�Hewlett-Packard�(HPQ), up 43 cents, or 2.3%, at $19.30, Dell (DELL), up 11 cents, or almost 1%, at $12.23, and�Microsoft�(MSFT), up 52 cents, or 1.7%, at $30.17.

While Intel’s chart is clearly positive, there is a great divide this morning among analysts over whether the diminished outlook makes it better or worse to buy the shares now:

Bullish!

Joanne Feeney, Longbow Research: Reiterates a Buy rating and a $34 price target. “We expect Intel to continue to see a mix shift towards low-end desktop and notebook markets, but we see strength in the company’s server products offsetting the impact on margins. As Romley and Ivy Bridge continue to ramp, we expect to see gross margins expand on lower unit costs, and expect TAM expansion to help fuel growth in 2013.”

Jonathan Pitzer, Credit Suisse: Reiterates an Outperform rating and a $35 price target, writing that, “Macro risks still persist, but no more so for INTC than the rest of Semis/the stock market. Sub-seasonal guide for C3Q, only seasonal for C4Q – despite lean inventory and Win8 – might actually mean INTC stock is less exposed, especially relative to continued negative investor sentiment. We disagree with but at least understand the structural bear call on INTC. The tactical call of disappointing revenue coupled with uncontrollable spending driving major EPS revisions is losing steam.”

Ross Seymore, Deutsche Bank: Reiterates a Buy rating and a $33 price target. “Intel delivered solid 2Q results and gained considerable mkt share vs. competition. Importantly, the co guided cautiously for 3Q/2H, acknowledging softer macro while also illustrating the resilience of its business model by generating solid profitability and FCF. We continue to believe INTC can outgrow its competition in MPUs, deliver strong growth in DCG and in its non- core areas (Mobility, NAND, Embedded etc.).”

Uche Orji, UBS: Reiterates a Buy rating and a $34 price target. “While it lowered full year sales growth guidance to +3-5% from high-single-digit resulting from the challenging macro, gross margin stays resilient due to higher ASPs softening the impact of top line weakness. We believe: 1) expectations have been reasonably reset, 2) Data Center growth has more runway than we feared, 3) the new product transition to ultrabooks is positive for ASPs/gross margin, 4) low channel inventory sets up for potential restocking in 2H if ultrabooks are well received or the macro improves.”

Bearish!

Patrick Wang, Evercore Partners: Reiterates an Equal Weight rating and a $26 price target. “It’s not safe to get in the water yet as there’s a chance Intel’s lowered expectations may still prove optimistic and we head towards a supply / demand imbalance later this year. Absent an improving macro, it’s hard to be constructive in a sea of negative data points. That said, we liked (a) robust DCG growth, (b) prudent op-ex controls, (c) unchanged 2012 GM guidance, and (d) capitulation to a more realistic FY growth target of +4% YoY vs. prior +8% YoY.”

Mike Burton, Northland Capital Markets: Reiterates a Market Perform rating and a $27 price target. “INTC is forecasting revenues to go up a less-than-seasonal 2-10%, or 6% sequentially, which is exactly in line with our expectation (but off a slightly smaller Q2), compared to the Street Consensus estimate for an 8% rise, and normal seasonality of up 9-10%. [�] While INTC did guide below seasonal (and the Street) for Q3, we expect the stock to perform well given there was no �cliff� in revenues for Q3.”

Cody Acree, Williams Financial Group: Reiterates a Hold rating. “While we believe we will likely see stronger seasonal PC activity in Q4, we are hesitant to expect a return to normal levels, particularly when considering that macro activity is likely not significantly different in the second half than the muted growth we have seen through the first few months. We expect mature market softness to persist, a strong dollar to continue to drive higher system build costs and emerging markets will likely grow nicely, albeit at a slower pace than seen over the past few quarters.”