Intel facing 'Margin Nightmare'
Intel is facing a margin collapse, reckon a couple of Wall Street’s finest.
Investment company Raymond James is expecting Intel’s 62-65% margin of recent years to be heading for the mid-50s short-term and to the low 50s in the longer term.
This is driven by commoditisation of x86, thanks to ARM, price competition in data centres, thanks to ARM, and price competition in PC.
The financial services company also points to Intel’s “increasing capex burden with little or no profit.”
Stockbroker Miller Tabak says that Intel is suffering from negative PC growth and excessive inventory of unsold chips (over $5bn worth).
Falling margins are a critical factor for Intel. While most chip companies would kill for a 60% margin, Intel has built its business model around getting very high prices for its chips.
If these fall, the Intel business model quickly comes under threat. Raymond James says Intel is faced with a “margin nightmare.”