Notes from Sterne Agee CRT's Intel (INTC) Roadshow

Douglas Freedman from Sterne Agee CRT recently brought Intel (NASDAQ: INTC) IR on a 3 day non-deal roadshow to visit clients and discuss current tone of business. Three areas were in focus: the China Fab, Data Center Growth and Mobility. Notes follow:

China fab conversion to memory

The joint venture with Micron is as strong as ever. The new investment in China will be mainly for converting the legacy 65nm fab for the production of 3D NAND and 3D-Xpoint. However, only a $3.5B investment was committed with an option to go up to $5.5B. Together Intel and Micron have access to industry leading memory technology (3D NAND and XPoint) that could allow both to gain share against larger peers.

The bear thesis is that share shift can only occur after a painful price battle from oversupply

Sustainability of Data Center growth

During the meetings, INTC confirmed that the long-term annual growth target for the data center group is 15% for three reasons:

1) ongoing deployment of cloud and high performance computing (HPC), which offset the continued weakness in traditional enterprise data center

2) increasing silicon content within data center with NAND and SSD offerings, and potentially 3D Xpoint

3) integration with FPGAs from the ALTR acquisition, expanding revenue opportunities

INTC believes PC demand volume has reached the bottom and expects its consumer group to become a flat revenue business. In the meantime though, the business unit remains cash flow positive.

Loss reduction actions in mobility

The Mobility segment is on track to see $800M loss reduction and potential growth upside given the Sophia platform transition, smaller tablet market, and the 7360 modem chip that is on track to release next year with Apple or Samsung being a potential volume customer.

3 things to look for from the November analyst meeting: 1) a renewed target for reduction in mobility losses that are captured inside of the CCG business unit; 2) Capex outline and depreciation schedule changes; and 3) capital allocation update

No change to Buy rating or 38 PT.

For an analyst ratings summary and ratings history on Intel click here. For more ratings news on Intel click here.

Shares of Intel closed at $34.71 yesterday.

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