Intel downgraded by Nomura Instinet after CEO’s departure

Nomura Instinet downgraded Intel to Neutral from Buy after the sudden departure of the chip maker’s CEO, calling the company a “chip without a sail.”

Intel’s CEO Brian Krzanich resigned last week after an internal investigation found he had violated the company’s “non-fraternization” policy.

“CEO Krzanich’s departure is disappointing on multiple levels. We believe the lack of leadership will only add to the already growing uncertainty about Intel’s long-term franchise,” Nomura Instinet said in a note on Monday.

The note said the most likely scenario was for Dr. Murthy Renduchintala, who oversees most of Intel’s product groups, to be promoted.

“Renduchintala is a well-respected engineer, but we think won’t immediately convince investors that Intel can overcome its challenges. We believe Intel needs to hire an external candidate,” it said, but noted that Intel has never hired an external CEO.

Nomura Instinet also noted that Intel disclosed in April that its 10nm production ramp up was delayed again, to 2019.

“In addition, we met privately with former CEO Brian Krzanich on June 4th in Santa Clara where he disclosed very matter-of-factly that Intel would lose server share to AMD in the second half of the year. This wasn’t necessarily incremental, but the fact that Mr. Krzanich would not
draw a firm line as it relates to AMD’s potential left investors believing that Intel faces stiff competition in 2019 too,” it said.

Nomura Instinet said it was raising its earnings estimates, but added that positive revisions were likely to moderate ahead.

It raised its earnings per share (EPS) estimate for 2018 to US$4.16 from US$3.85, and for 2019, it raised its estimate to US$4.40 from US$4.33, but for 2020, it cut its estimate to US$4.66 from US$4.70.

It also cut its target price to US$55 from US$60, pointing to heightened uncertainty around the CEO’s departure and resulting search.

The stock was down 2.72 percent at US$51.07 at 10:19 P.M. SGT on Monday.

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