Shares of chipmaker Intel Corp. (INTC, Financial) have fallen more than 11% since Friday on tepid performance guidance for full fiscal 2019. The company’s first-quarter results were relatively in line with the same period last year.
Intel reported revenue of $16.06 billion, flat on a year-over-year basis but $70 million above the consensus estimates. Non-GAAP earnings of 89 cents per share also beat expectations by 2 cents.
Despite the beat, Intel’s revenue guidance for the year disappointed investors, sending shares 9% lower on Friday.
The company now expects to report revenue of $69 billion in 2019, below the consensus estimates of $71 billion. Projected earnings of $4.35 per share are also below expectations of $4.50.Â
Beyond its lackluster guidance for the year, Intel also faces a potential slowdown in top-line growth over the next several years after officially exiting the 5G phone modem business. The company said it will continue to supply Apple Inc. (AAPL, Financial) with 4G phone modems, but won’t be pursuing the 5G product line.
This decision follows a settlement agreement between Apple and Qualcomm Inc. (QCOM, Financial). According to The New York Times, the companies inked a six-year licensing deal in which Apple will pay unspecified royalties on Qualcomm's patents.
This will affect the company’s long-term growth given the 5G network is one of the most anticipated growth catalysts in the telecommunications sector. Intel, Qualcomm and Advanced Micro Devices Inc. (AMD, Financial) were primed to benefit from the expected boom in the adoption of 5G networks in North America. Now it looks like Qualcomm and AMD will benefit the most in the U.S., while Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial) will dominate the Asian market.
Based on recent events, it appears Intel’s decline might be justified. But did investors overreact given the depth of the decline?
Shares of the company had gained 22% since the start of the year before they nosedived last week. In comparison, the VanEck Vectors Semiconductor Exchange-Traded Fund (SMH, Financial) had rallied 36%, which suggests Intel was already underperforming the industry. From a valuation perspective, this could also mean the stock was already undervalued, which makes the recent decline even more appealing.
Some analysts still have a price target of about $56 per share, while others have lowered their prospects to the mid-$40s. A price-earnings ratio of 11.55 compared to Taiwan Semiconductor's multiple of 19.95 indicates the stock could be relatively undervalued. Intel also pays dividends at a current yield of about 2.5%, which will be attractive to investors as it seeks to navigate through the current slowdown in revenue growth.
In summary, Intel’s shares have fallen by more than 11% since announcing its first-quarter results. This could be an opportunity to buy the stock, but there are some analysts who believe shares could fall even further. The next several quarters will be interesting to watch.
Disclosure: I have no positions in the stocks mentioned.
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