Since early June, Intel (NASDAQ:INTC) shares have been in an awful downward spin. Note that Intel stock price has gone from $57.60 to $46.40. This actually puts the shares near bear territory, with a return of -19%.
The selling pressure on Intel stock should not necessarily be a surprise. Keep in mind that the chip sector has been under pressure lately. Just look at the performances of stocks like Micron (NASDAQ:MU), Applied Materials (NASDAQ:AMAT) and KLA-Tencor (NASDAQ:KLAC). Wall Street is worried about the potential impact of trade tensions between the U.S. and China as well as uncertainties about the demand for chips.
Intel’s Company-Specific Problems
Yet the problems facing Intel stock are about more than just industry headwinds. Keep in mind that the company has some internal issues to work out.
One of those issues is leadership. In June, Intel’s then-CEO, Brian Krzanich, was forced to leave his post because of a consensual relationship with an Intel employee. He had been at the helm since 2013. Krzanich, 58, first joined Intel in 1982.
Unfortunately, there was no immediate replacement for Krzanich, indicating that there was not an effective succession plan in place. Note that CFO Robert Swan has been named interim CEO.
INTC Stock Facing Intensifying Competition
The drama in Intel’s executive suite comes at an awful time, since its core datacenter business is under attack. Rivals like NVIDIA (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) have been gunning for this lucrative market.
The intensifying competition could be the biggest threat to Intel stock. For the past year, the datacenter business generated a whopping $21 billion in revenues for Intel and has been a nice growth driver. The growth has been driven by the megatrend of cloud computing, which is being fueled by companies like Amazon.com (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG, NASDAQ:GOOGL).
For the most part, Intel has been suffering from manufacturing problems, as the launch of its 10nm (nanometer) chips has been delayed a number of times.
AMD has been able to capitalize on Intel’s difficulties, as it has developed a 7-nm chip. As a result, AMD is poised to capture significant market share from Intel. Consider that AMD’s existing EPYC server processors have already been gaining traction with large customers like Cisco (NASDAQ:CSCO) and HP Enterprise (NYSE:HPE).
Analysts Are Bearish on INTC Stock
A recent report from Jefferies analyst Mark Lipacis says: “Assuming our assessment of AMD’s transistor lead in 2019 is correct, and Intel’s supply constraints linger through mid-19, we think a market share of 70 (for Intel)/30 (for AMD) is not out of the question.” According to the analyst, Intel’s share of the market currently stands at 90%.
Other analysts are also bearish on Intel stock.
Goldman Sachs (NYSE:GS) analyst Toshiya Hari has slapped a “sell” rating on Intel stock because of the company’s manufacturing problems. He also lowered his price target on Intel stock from $53 to $44.
According to Hari, “While the 10nm push is well publicized at this point, 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 TSMC eco-system.”
Bottom Line on Intel Stock
Intel does, however, have several key advantages. The company has a talented workforce, a global footprint, and an extensive set of facilities. And it has a long history of being able to deal with competitive threats.
INTC stock price is fairly cheap, with the forward price-earnings ratio at 11. The stock also has a respectable dividend yield of 2.64%.
But in the near-term, Intel still poses considerable risk. Let’s face it, companies like AMD and NVDA will certainly work hard to take advantage of Intel’s difficulties. Given this situation, the decline of Intel stock price may not be over.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
