This article isn't going to be long, but I'd like to illustrate a prime example of why making any investment decisions based solely on a sell-side recommendation is pure folly. The role of sell-side research is just that - to provide you with research. If you can access the reports, I encourage you to do so. Read what the analysts have to say, but don't simply "do" what they say with those recommendations - do your own due diligence and use all of the sell-side research you can find to help you in making your own decisions. My writings, while not driven by any need to generate trading revenue, should also be used as a starting point for research (although I'm much more interactive and you also get the benefit of the crowd discussing the theses in the comments section with other individuals - this is the true value of Seeking Alpha).
However, it's important to note that not all sell-side research is the same, and there's some very good research (if you can get a hold of any reports from Sanford Bernstein, the semiconductor analyst there is among the best), and then there's poorly thought out/poorly timed research. Today's Intel (NASDAQ:INTC) downgrade from MKM Partners is a prime example of the latter.
Intel Downgraded On "No Catalysts"
MKM Partners "downgraded" Intel on the basis that there are "no catalysts" in sight. I don't know if the analyst at MKM is new, or simply unaware of the company that is being talked about, but does this person know that Intel's big analyst day is coming up in just a week?
Now, to give you some color on the analyst day, this is an extremely important event. At analyst day, the heads of every division of Intel goes up and talks about how things are going, what the future plans for the company are, and potentially some roadmaps and business unit growth expectations. It is a highly informative event, and while I do try to disseminate the salient points of this event in my own analysis, I highly recommend viewing the materials yourself when they're available at intc.com.
Anyway, so while the individual business unit stuff will be interesting and likely wake up the few remaining analysts who think that Intel can't make smartphone/tablet chips, the two most important presentations will be the one from the CEO/COO outlining the vision of the company, and then the one from the CFO talking about Intel's capex and revenue growth plans. If Intel has an "upside surprise" (or downside one...) on the guidance for us, it will likely be revealed in the CFO's presentation.
I still can't believe that this analyst would downgrade on "no catalysts." However, it does speak to a very important point.
The "No Mobile Traction" Line Doesn't Work Anymore
Honestly, it's nice to see the "no catalysts" downgrade in the face of an obvious catalyst. It means that the bears/skeptics are quickly running out of ammo. Usually, you'd get some guy claiming "no traction in mobile," "the PC is dying," or "Applied Micro is going to release X-Gene someday," but it's obvious that nobody wants to use that one. Why?
Well, with Intel in the top 4 vendors of applications processors for tablets, and with the company on the verge of launching its "Merrifield" system-on-chip platform for smartphones, it's really hard for anybody to believe this. Oh, and the fact that Intel's first gen LTE modem is within spitting distance of Qualcomm's (NASDAQ:QCOM) in terms of performance and power (while built on older process technology to boot) sort of kills the comms/cellular argument. All in all, it's obvious to just about everybody that Intel is already taking tablets by storm and will be taking smartphone share in non-trivial quantities soon.
Of course, the better question is, why not use the "PC is dying" argument? Frankly, this one is the argument with the most teeth - it's clear that the notebook slowdown continues. However, the risk to that thesis is that Haswell Ultrabooks are starting to roll out and cheaper, fanless, slim notebooks based on Bay Trail-M will be out shortly. These could very well spur growth during 2014, albeit it is likely that it will be in the low single digits (better than nothing, though).
The bottom line is that Intel is a stock that has suffered for the last two years because its revenues have been flat/slightly down since 2011. The growth in the datacenter has been nice (and will get better), but the PC and Other IA declines have been painful. That being said, it looks like 2013 was the bottom as Intel's baseband business (thanks to LTE rollout) should get a much needed shot in the arm, its tablet chips continue to take share, and its smartphone apps processor platforms prepare to roll out. PC client group could also grow in 2014, and datacenter growth should accelerate during 2014 with the roll out of the "Grantley" platform.
Intel may still be range bound in the near term, but the upside potential for 2014 now that we're just about done with this "transition year" is quite compelling. Maybe that's not a reason to upgrade shares today, and I can certainly see a bear case that could drive a downgrade, but downgrading on "no catalysts" seems pretty poorly thought out.
Disclosure: I am long INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.