NEW YORK (CNNfn) - Shares of Intel plunged more than 6 percent Tuesday, after a Wall Street analyst downgraded the No.1 chipmaker's stock rating, citing revenue concerns.|
In late afternoon trading, shares of Intel (INTC: Research, Estimates) shaved off $4.69 to $69.25 after US Bancorp Piper Jaffray analyst Ashok Kumar slashed his recommendation and made several bearish comments.
Kumar cut his stock rating of Intel to "buy" from "aggressive buy," citing continued demand weakness, no seasonal recovery, oversupply and weakening fundamentals, indicating that the stock's strength has peaked and that he expects Intel stock to pull back to its base in the $60s.
"We feel that unless business picks up substantially over the next three weeks, there is risk to our Street-below revenue estimates of $9 billion," Kumar said.
The analyst told CNNfn that he believes slower growth in chip sales would hurt Intel in a big way. [WAV 219KB] or [AIF 219KB].
"Due to continued unexpected demand weakness, we now expect sequential unit growth in the mid-single digits, which is well below consensus expectations," Kumar said in a research note.
In an interview with CNNfn, Kumar said Intel's chip weaknesses were seen not only in the United States, but abroad as well. Japan was the one exception, but Kumar pointed out that Japan only represents 10 percent of Intel's worldwide unit mix.
"We are seeing particular weakness non-Japan Asia Pacific, which is about 30 percent of unit mix," Kumar said.
"We received growth rates which were 60 percent year on year in the first half in non-Japan Asia Pacific, having dropped by almost 50 percent for the third quarter, Kumar said. "The growth rate in Europe is in the single digit year on year and North America is also very quickly dropping to single-digit growth year on year. So, the weakness is both retail and commercial."
"Our lowered expectations imputes a meaningful pickup in demand over the next three weeks," Kumar said.
As a result of Kumar's dismal outlook for Intel, he said PC makers could bear the brunt of chip shortfalls.
"Consequently, we also expect [computer manufacturers] to post disappointing revenues for the quarter," he added.
SG Cowen also takes bearish view
SG Cowen semiconductor analyst Drew Peck told CNNfn.com in an interview that he agrees with Kumar's outlook for the most part. Peck rates Intel shares "neutral."
"I'm not only in agreement, I've been feeling for quite a while that these issues are going to emerge pretty soon," Peck said. "I guess the only question I have is, if everything that Kumar described is true, which frankly, I believe it is, then why does he still have a 'buy' on the stock?"
"The fact is that Intel has been, not a little bit, but by a significant margin, an underperformer, and I'm not talking about the stock, I'm talking about the fundamentals of the company," Peck said. "The growth rate of Intel over the past 18 months has been less than half of that of the semiconductor industry and it doesn't look like that situation is going to improve."
"Meanwhile, that's been in the midst of reasonably stable pricing in the processor business and I think that the stable pricing is about to come to an end," Peck said. "By the end of this year, we're going to see sharply eroding prices as we get into the first half of next year."
Peck said Intel's execution problems over the past 9 months have prevented the company from producing excess processors, but he said it looks like Intel is resolving some of those issues.
"But ironically, this is going to turn the shortage into a surplus in a very short period of time," Peck said. "This problem has also been masked by seasonal demand for processors, which is very strong at this time of the year."
"But both of those benefits are going to disappear by December and then January and February are going to be very, very tough," Peck said. "I don't have an issue for Intel's third quarter, which is mostly over. My concerns are mostly focused on the first quarter of next year -- that's when things are going to start getting derailed."