Hidden Positive Aspects of Intel in Research (INTC, TSM)

Intel Corp. (NASDAQ: INTC) shares rose today after  Broadpoint AmTech raised its rating to “Buy” from “Neutral.”  We normally would not make much of an issue on a single event like this, but the analyst made some interesting points which we have also noted recently that might not be modeled into Wall Street forecasts.

First, even the pygmies have figured out that IT spending in 2009 is going to be soft.  When growth resumes, Intel expect it to be from a lower base level.  But issues such as its new announcement with Taiwan Semiconductor (NYSE: TSM) for systems on a chip (SoC) are entirely new arenas which Intel will be able to make some major headway.  So back to what AmTech has called for….

This is a horizon trade rather than a long-term call, but AmTech has lifted its price target to $17.00 for an implied 21% upside in the call.  The research report noted, “we believe the market has yet to price in Intel’s serious attack on new revenue sources, including Larrabee (GPU) and non-core PC embedded computing and SoC opportunities.”  It also noted that its worries about longer-term margin impact on these markets and whether the impact of “good-enough” CPU performance (good enough meaning that basic use of the majority of the public doesn’t demand more).  AmTech believes that this likely opens the door to highly integrated SoC solutions in consumer, wireless, communications and networking infrastructure, and even in automotive uses,

The firm expects more news regarding non-PC customers.  These will not have an impact near-term but the analyst said that the $20 billion application process market remains unpenetrated by Intel.  Another note is the cash on the sidelines, which AmTech feels will go back into large cap stocks and leaders first with a relatively safe dividend yield.

AmTech said it is getting ahead of the positive news-flow getting priced into Intel, and also noted that the upside now outweighs downside risk at the current stock price.  It calls this a six-month to nine-month trading horizon as Fiscal 2010/11 top-line expectations get priced into the stock.

More specifically, AmTech said it is not predicting how successful the new customer and market engagements will be in terms of revenue or gross margin accretion and that it still has concerns.

JON C. OGG