Intel: Things'll Be Better in 2018 Says Mizuho

Shares of Intel (INTC) are trading lower with the general sell-off in tech - the Nasdaq is down half a percent as Apple (AAPL) and its suppliers slump on speculation about lower-than-expected iPhone X sales - but the chip maker is looking at a better 2018 than you may think, according to a note this morning from Vijay Rakesh of Mizuho.

We just have to get past the March quarter, writes Rakesh, which is looking like it may come in lower than Wall Street is expecting. Intel's PC client revenue declined by 13% in the March quarter of last year, from the prior quarter, and the Street currently is modeling a decline of just 10% to 11%, which "could be optimistic," he writes.

For one thing, Intel can look forward to increased shipments of baseband modem parts in the iPhone X, writes Rakesh, as it takes share from Qualcomm (QCOM), and also rising sales of NAND flash chips:

Near-term, while we believe DecQ modems with iPhone8 ramps have been weaker, MarQ should have some offset with continued with modest iPhone X ramps. While AVGO acquisition of QCOM could be a challenge to INTC's modem supply as AVGO could potentially try to keep the entire modem share, in 2018 we do not believe this is a threat with the deal potentially only consummated by the end of 2018. Also, the $2B NAND prepayment for a 64-L 3D NAND supply agreement should be a tailwind through 2018.

And the lower tax rate as a result of the new rules signed into law by U.S. president Donald Trump last week mean a lower rate overall for Intel, plus the prospect of a big repatriation :

While INTC gets ~78% of its revenue overseas, with an overall corporate tax rates at ~23% (higher in the U.S), it should be a beneficiary of the new lower ~21% tax rate with some of its key IP in the US. With ~80% of its ~$17B+ cash offshore it positions INTC for potential accretive share buybacks or dividend actions in 2018.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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