Intel Update

INTC : NASDAQ : US$27.96

Target: US$31.00

Technology — Hardware — Semiconductors and Related Technologies
Investment recommendation:

Intel updated JuneQ guidance well above
the prior revenue range driven by strength in PCCG, particularly
enterprise-focused PCs. While these stronger than anticipated trends in
PCCG have proven more sustainable than we had anticipated, we build
our long-term investment thesis on unchanged views toward growth
prospects in Intel’s other businesses. That said, stronger and more
sustainable trends in PCCG provide a more firm foundation for and
flexibility to those businesses. We adjust our estimates higher to reflect
this enterprise PC strength and the positive impact to margins from
leverage. We maintain our HOLD rating, but raise our target to $31.
Investment highlights
 While we maintain our belief secular PC declines will continue in the
longer term, resilient enterprise PC sales have continued to be
stronger than our expectation, with upgrades from WindowsXP
systems serving as a tailwind.
 Driven by these trends, Intel raised midpoints of its JuneQ revenue
and gross margin guidance from $13.0B/63% to $13.7B/64%. In
addition, management now anticipates “some” revenue growth Y/Y
in 2014 and gross margin at the high end of the previous range, or
above 61%. JuneQ and 2014 operating expense guidance was
increased from $4.8B/$18.9B to $4.9B/$19.2B at the midpoints.
 We discuss our detailed investment thesis and unchanged views on
Intel’s non-PC businesses in our June 9 report titled “Anticipate
strong data center growth, but DCG guidance is aggressive given
increased server competition; resuming with HOLD, $29 target.”
 Based on the updated outlook, we increase our 2014/15 non-GAAPEPS estimates to $2.24/$2.35 from $2.13/$2.25.
Valuation: Our $31 target is based on shares trading at roughly 13x our
2015 non-GAAP EPS estimate, excluding stock-based compensation


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