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Mellanox Tanks On Q2 Guidance, But ‘Well Ahead’ Of Intel, Broadcom

Mellanox Technologies ( MLNX ) stock dove Thursday on weaker-than-expected Q2 guidance late Wednesday, but analysts say the IBD Leaderboard stock won’t succumb to competition from “large incumbents” Intel ( INTC ) and Apple ( AAPL ) supplier Broadcom ( AVGO ). Summit Research analyst Srini Nandury calls Mellanox stock “the name to own in this space,” talking about the Ethernet and Infiniband markets. But Mellanox stock was down 14% in midday trading on the stock market today , at a two-month low below 48. For Q1, Mellanox reported 81 cents earnings per share ex items on $196.8 million in sales, up a respective 35% and 34%. Both metrics topped the consensus of 14 analysts polled by Thomson Reuters for 75 cents and $191.7 million. IBD take: Mellanox is a big mover today, and the move is down, but it had been doing well. The Q2 guide was Wall Street’s sticking point, Credit Suisse analyst John Pitzer wrote in a research report, though he retained an outperform rating and 60 price target on Mellanox stock. Current-quarter sales guidance for $210 million to $215 million, up 30% at the midpoint, was slightly short of Wall Street expectations for $214.6 million, Pitzer wrote. Q1 was Mellanox’s seventh consecutive beat and fourth straight of record quarterly revenue, Piper Jaffray analyst Andrew Nowinski and Summit Research analyst Srini Nandury wrote in separate reports. Nowinski maintained his overweight rating and 65 price target on Mellanox stock. Nandury rates Mellanox stock a buy and also has a 65 price target. Both note Intel’s Omnipath isn’t, so far, holding a candle to Mellanox’s 100-gigabit/second (Gb/s) Infiniband product. Omnipath is also 100 Gb/s, but Mellanox is on track to launch 200-Gb/s and 400-Gb/s products in 2017 and a 1-terabit/second (Tb/s) product early next decade. “Mellanox is seemingly ahead of everybody in the market and is executing flawlessly on the Infiniband road map,” Nandury wrote. He said Mellanox is the only OEM to deliver 25/50/100-Gb Ethernet adapters in addition to switches, “well ahead of Broadcom.” Intel stock was down a fraction and Broadcom stock down 1% midday Wednesday. No. 1 chipmaker Intel, late Tuesday, reported mixed Q1 results on a minimal year-over-year climb in PC sales and announced it would lay off 12,000 in an effort to focus on stronger segments.

PC Devastation Fuels Intel Jobs Slash, Hard-Disk Drive Crash

The sharp drop in PC sales that is the main reason Intel ( INTC ) will slash 12,000 jobs is also why the disk drive industry continues to get slammed. The two largest disk drive makers, Western Digital ( WDC ) and Seagate Technology ( STX ), for several years have tried to deftly maneuver through the dramatic drop in PC sales. Global PC shipments fell 9.6% in the first quarter, year over year, to 64.8 million units, according to research firm Gartner. It was the sixth consecutive quarter of declines and the first time since 2007 that quarterly shipments fell below 65 million units. Chips and disk drives have been two central elements in every PC since personal computers emerged about 35 years ago. Intel has moved to lessen its reliance on PCs by getting more chips placed in mobile devices, data centers and elsewhere. “We are evolving from a PC company to a company that powers the cloud and billions of smart connected and computing devices,” said Intel CEO Brian Krzanich, when the company reported fourth quarter earnings on Tuesday. Besides the PC drop, Seagate and Western Digital have been hit hard by the emergence of tablets and smartphones, which don’t contain disk drives at all. Seagate’s year-over-year revenue has decelerated for 10 of the last 12 quarters. The trend is similar at Western Digital. That is expected to continue when both companies report quarterly earnings next week. Weston Twigg, an analyst at Pacific Crest Securities, expects disk drive revenue to decline about 8% annually through 2020, he wrote in a research report Tuesday. Both companies have sought to battle through the onslaught by diversifying into other areas, mainly by investing in solid-state memory chips and the development of all-chip storage systems, called solid state drives. Twigg expects solid-state drives will represent about half of data storage drives by 2020. Western Digital is making a huge play in the solid-state storage market with its $19 billion acquisition of SanDisk ( SNKD ), a leading provider of flash-memory chips used in smartphones and tablets. The deal positions Western Digital as having one of the most complete lines of storage among all providers. The deal, though, is a big risk for two reasons — Western Digital is taking on lots of debt, and the flash-memory market is highly competitive with the potential for substantial overcapacity, Twigg writes. This includes competition from Intel, Micron ( MU ) , Samsung and Toshiba. The good news is that Western Digital will be well-positioned if data-intensive applications like artificial intelligence, robotics, and the Internet of Things drive substantially higher demand for data storage, with hard-disk drives creating the backbone of these systems, he said. These same trends could bolster Seagate, though the company has been far more cautious about entering the chip-storage arena than Western Digital.

‘Elephant’ Intel Dances, But 12,000 Layoffs Could Signal Recession

No. 1 chipmaker Intel ( INTC ) will cut 12,000 jobs by mid-2017, and that will help kick off a “recession” with nearly 400,000 tech positions to be cut this year, a Global Equities Research analyst predicted Tuesday. Late Tuesday, Intel added another domino to the layoff train, joining  VMware ( VMW ), Yahoo ( YHOO ), BlackBerry ( BBRY ), Autodesk ( ADSK ) and NetApp ( NTAP ), which recently announced plans to collectively lay off 5,125 employees. Intel’s 12,000-cut represents 11% of its global workforce. Global Equities Research analyst Trip Chowdhry says it’s just a drop in a 369,000 bucket (his prediction for tech layoffs that will be announced this year) and argued against a Federal Reserve rate increase amid what he calls a likely oncoming recession. PC Transition Will Be ‘Messy’ On Wednesday, Wall Street was largely split on Intel’s mixed Q1 , with at least five analysts still rating Intel stock a buy. At least two analysts cut their price targets, however, and another downgraded Intel stock. In early afternoon trading on the stock market today , Intel stock was up 1.5%, near 32. But shares are down 8% for the year vs. a 3% decline in IBD’s 39-company Electronic-Semiconductor Manufacturing industry group. For Q1 ended April 2, Intel reported $13.7 billion in sales and 54 cents earnings per share, up a respective 7% and 20% year over year. The consensus of 45 analysts polled by Thomson Reuters expected $13.8 billion and 48 cents. PC chip sales rose 2%, but that trailed stronger growth in data center, Internet of Things and security — up a respective 9%, 22% and 12%. Nonvolatile memory chip sales fell 6%. Current-quarter sales guidance for $13.5 billion, plus or minus $500 million, lagged the consensus for $14.2 billion. Intel’s April quarter benefited from an extra week. Intel’s transition from a PC-oriented company will be “messy,” Credit Suisse analyst John Pitzer wrote in a research report. Late Tuesday, CEO Brian Krzanich said the layoffs would allow Intel to save $750 million in the first year and $1.4 billion per year starting by mid-2017, so that the company can “intensify” investments in key growth areas. Pitzer reiterated an outperform rating and a 40 price target on Intel stock. ‘Trying To Be More Nimble’ PCs represented 55% of Intel’s Q1 sales vs. 58% a year earlier. In 2011, the client computing group accounted for 65% of Intel’s revenue. The company is aiming to trim that to 50%, which Semiconductors Advisers President Robert Maire calls a “milestone.” “Intel is certainly trying, perhaps with varying degrees of success, to get revenue from many other markets,” Maire wrote in a research report. “While individually, none hold a candle to the PC market, collectively they have been a great offset.” Unlike other companies, Intel isn’t in the red while transitioning, Maire noted. He likened the restructuring — which includes transitioning CFO Stacy Smith into a role leading sales, manufacturing and operations — to teaching an elephant to dance. The elephant theme was popular Wednesday. “Who says elephants can’t dance?” Summit Research analyst Srini Sundararajan queried in a report. Sundararajan reiterated his buy rating and 37 price target on Intel stock. “Keeping (2016) capital expenditures the same ($9.5 billion at the midpoint) while proceeding with a layoff confirms that Intel is trying to be more nimble and refocusing itself away from the PC,” he wrote in a report. During Q2, Intel will recognize a $1.2 billion restructuring charge. But the second half of 2016 looks promising, Sundararajan said. Intel dropped full-year guidance to mid-single-digit growth vs. earlier views for mid- to high-single-digit growth. Sundararajan says this suggests a big second-half-year recovery, with revenue up 13%.