The impact of Intel's chip shortages could 'magnify,' RBC says

Reuters/Sergio Perez

A visitor passes an Intel logo at the Mobile World Congress in Barcelona, Spain.

• Intel earnings will be impacted in the coming quarters due to chip shortage, says RBC Capital Markets.
• RBC lowered its target price to $55 from $57.
• Watch Intel trade in real-time.

Intel's earnings will be impacted in the coming quarters as the long-time chip-industry leader faces a processor shortage, according to RBC Capital Markets.

The firm lowered its target price to $55 from $57 and maintained its "sector perform" rating - predicting the shortage will impact fourth-quarter PC shipments, which normally see strong seasonal demand.

"We are lowering our Dec-qtr and beyond rev/EPS estimates to reflect the impact of the company's CPU shortages," RBC Capital Markets analyst Amit Daryanani wrote in a note sent out to clients on Monday.

"Multiple NB and PC ODMs have cut their 2H18 shipment forecasts due to Intel's 14nm processor shortages. We think the impact of shortages could magnify in Q4, which normally sees strong seasonal demand. We think Intel will likely dictate allocations toward its key partners (DELL, HPQ, etc.), and this could create a more pronounced impact on the smaller PC OEMs."

Daryanani reduced his estimate for Intel's fourth-quarter earnings $1.08 per share compared to the Wall Street's estimates of $1.09. He sees full-year 2019 earnings coming in $4.21 per share versus the Wall Street consensus of $4.23.

RBC Capital Markets wasn't the only Wall Street bank forecasting a drop in earnings. Barclays lowered its rating to "underweight" from "equal weight" and reduced its price target to $38 from $53 - a 20% downside to where shares settled on Friday.

"The market is already giving AMD credit for significant share gains, but Intel is not going to let that share go without a fight with pricing the only real lever to pull," Barclays' analyst Blayne Curtis said in a note sent out to clients on Monday. "It's a lose-lose for INTC as every 2% decline in server ASP leads to a $0.09 hit to EPS, and a 2% decline in client ASP costs $0.12."

Addressing the chip shortage, Intel interim CEO Bob Swan said in an open letter on Friday, "The surprising return to PC TAM growth has put pressure on our factory network," adding that Intel would be prioritizing the production of processors for their high-end market. "That said, supply is undoubtedly tight, particularly at the entry-level of the PC market."

Intel shares were down 2.6 % this year.

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