Did Intel Deserve This Downgrade?

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One of the great truths of trading is that analysts can hurt you over the short term. Just ask anyone who owns shares of Intel (Nasdaq: INTC  ) . The stock had been off as much as 3.5% on an up market day, thanks to a Nomura Securities downgrade.

Analyst Romit Shah has good reasons for liking Intel less today. The chipmaker reduced its forecast for full-year PC shipment growth -- from the low double digits to 8%-10% -- and authorized $300 million in new capital spending. Less demand, more cost. Not good, right?

No, but the story also isn't that simple. Intel CEO Paul Otellini said in a Bloomberg interview that reduced PC demand wouldn't dampen revenue growth since the hit would come at the lowest end of the market, where Intel's Atom chip competes with low-power designs from ARM Holdings (Nasdaq: ARMH  ) and MIPS Technologies (Nasdaq: MIPS  ) .

Diversification is key to Intel's stock story, as Otellini tells it. During yesterday's call with analysts, he pointed to a 38% increase in microprocessors for storage devices and a 40% increase in revenue from data-networking customers. Data-center clients are also increasingly relying on Intel-powered servers, Otellini told Bloomberg.

But don't tell that to traders. To them, Intel and Microsoft (Nasdaq: MSFT  ) are the PC business. And if the PC business is slowly giving way to tablets, smartphones, and single-purpose cloud laptops such as Google's (Nasdaq: GOOG  ) Chromebook, "Wintel" will pay a dear price. Otellini would say otherwise, but I want to know what you think.

Will you buy Intel shares today? Please vote in the poll below, and then leave a comment to tell us whether you think Nomura's assessment of Intel is fair. You can also add Intel to your watchlist for up-to-date analysis on the stock as soon as it's published.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Google and MIPS Technologies at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Microsoft, Intel, and Google and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Google, Intel, and Microsoft and creating a diagonal call position in Intel. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 21, 2011, at 6:14 PM, knflarup wrote:

    { love Intel. I also love Mr. Shaw. Betting against him is golden It is like Kentucky in the late 60's and early 70's. They were not a great football team( basketball yes),but they beat the spread against SE conference opponents 20 straight times.

    Kn Flarup

  • Report this Comment On July 21, 2011, at 6:18 PM, sushibn wrote:

    I prefer utilities for now...this market is about to crash!!!

  • Report this Comment On July 21, 2011, at 6:23 PM, 123spot wrote:

    What do I think? You go boy.! Nothing like a little sanity when the world's going crazy. Bought INTC today, now buying more tomorrow. Looks like investing for grown-ups to me. Reasonable valuation, proven track record, cash to get it through, R&D to lay out there once we all get through. Not to mention a dividend in case computing goes south. Talk about a hedge. Cheers.

  • Report this Comment On July 21, 2011, at 6:39 PM, caiusmarcus wrote:

    I have owned intel for the past 5 years and am willing to the the DR program work for me.

  • Report this Comment On July 21, 2011, at 9:03 PM, techy46 wrote:

    I buy below 20 until it reaches new high then sell covering long position with calls if I think it still has good upside. I then start all over again. This is going to be different if Intel gains traction in mobile market and Windows 8 come out by mod-2012. Analysts really believe in PC's Dead when it's actualy PC's Mobile that we'll be sssing in 2012.

  • Report this Comment On July 21, 2011, at 11:51 PM, awu3210 wrote:

    I do not know why Intel is treated with so much disrespect by Wall St. It seems even though the company almost always beats analysts' estimates, the stock still gets spat on in spite. This is one of those stocks that make me lose faith in value investing.

  • Report this Comment On July 22, 2011, at 2:28 AM, KurtEng wrote:

    INTC is one of my top holdings because the market seems way too pessimistic about it. Intel is the processor of choice for Windows, Mac, and Linux. Yes, tablet probably will eat some of their business, but Intel isn't going anywhere for a long time.

    My final thought on why I own Intel. Tablets are for playing solitaire and torturing others by showing them slideshows of your photos. Servers and desktops are for doing work. Intel processors simply make their owners money, and people will be happy to own them for a long time to come. Tablets are more subject to fashion and tech fads.

  • Report this Comment On July 22, 2011, at 1:08 PM, drborst wrote:

    I've heard a story about how most invested money is now in mutual funds. Most of those funds advertize that they invest a certian perventage in different sectors, like "15% in tech."

    When a fund buys an IPO like linkedin or groupon, they have to sell another tech holding to cover it or expand the percentage dedicated to "tech stocks", or when an APPL doubles in two years, they rebalance by selling some other tech holding.

    That would explain how an Intel can double revenue and earnings compared to 3-4 years ago while the stock barely moves. Any thoughts on that theory, Tim?

    DRB

  • Report this Comment On July 22, 2011, at 10:10 PM, russfischer1013 wrote:

    Intel is moving to 22nm technology, a 30% shrink. 50% more chips per wafer. That means that one of their three manufacturing centers should be excess. But they are building a fourth manufacturing center???? That means putput can double. What does Intel have up their sleeve??

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