Goldman Sachs is taking a bearish view on the chipmaker Intel (NASDAQ:INTC) as its analyst Toshiya Hari has slashed his position on the stock to Sell from Neutral and its 12-month price target to US$44 from US$49.
In a note to investors, Hari argues that Intel’s struggles with 10-nanometer process technology will have consequences for its ability to battle against its rival Taiwan Semiconductor Manufacturing Co (NYSE:TSM) and other chipmakers as well as its ability to sustain its margins and grow earnings.
“We believe Intel’s manufacturing issues could potentially be deeper-rooted than what most think and could have a sustained impact on market share and/or spending levels as Intel competes with a growing/stronger Taiwan Semiconductor Manufacturing Company eco-system,” Hari wrote.
Goldman analysis suggests that between 2017 and 2020, Taiwan Semiconductor Manufacturing Company will grow its research and development at an 8% compound annual growth rate compared to just a 5% CAGR for Intel.
Competition from rivals may prove too much for Intel
Hari is particularly concerned about Intel’s ability to fend off further competition from Advanced Micro Devices, Xilinx, Nvidia and its own customers like Google which are now producing their own chips.
“We are sell-rated on Intel based on concerns around the company’s process technology roadmap, increased competition from Advanced Micro Devices, Xilinx, Nvidia, startups and its own customers (i.e. companies including Google, who are now producing their own chips to address their compute needs),” he wrote in his note.
In addition to concerns about revenue, Goldman analysts also see risks to gross margins due to Intel’s growing mix of lower-margin revenue as well as increased pricing pressure resulting from competition and “higher, go-forward” depreciation.
Goldman would consider adopting a more positive stance on Intel if the chip maker were to refocus its portfolio by divesting its non-core assets or by reducing its investment in areas where Intel is not having much success.
Intel shares were flat in pre-market trade at US$49.16.