Intel slips after downgrade by Wells Fargo citing competition, low demand

Semiconductor giant Intel Corp. (Nasdaq: INTC) suffered a jolt Friday morning after Wells Fargo (WFC) lowered its rating on the company to market perform from outperform. According to the brokerage, for Intel, the growing competition from rival chipmaker Advanced Micro Devices (AMD) could add to the downside risk from subdued microprocessor demand.

The market was quick to react to the downgrade, and shares of the Santa Clara, California-based company dropped about 2% early Friday.

The research firm is of the view that the nanometer processor line of AMD is capable of effectively competing with Intel’s latest nanometer processors. The analyst has also taken a cue from the market outlook for the semiconductor sector, suggesting a slowdown in the demand for DRAM and NAND memory chips this year. Specifically, the first half of the year could be challenging for Intel, going by Wall Street’s cautious view on the sector’s performance until the end of the second quarter.

Interestingly, the rating downgrade came hours after an analyst at Nomura Instinet issued a bullish statement on the prospects of AMD this year, sending the company’s stock higher by 10% Thursday afternoon. Initiating coverage of AMD with a buy rating, the analyst said its profit will grow sharply this year and continue to gain in the coming years, supported by strong top-line growth.

The ripple effect of AMD’s stock rally was visible in the performance of peers Nvidia (NVDA) and Micron (MU) towards the final hours of Thursday’s session.

In the fourth quarter, Intel’s revenues missed the estimates despite registering a 9% growth. Earnings climbed 18% annually to $1.28 per share. The company previewed the new 10nm-based products during the quarter and exuded confidence that they would drive growth in the current year and beyond.

During Friday’s pre-market trading session, Intel shares pared their recent gains as the rating downgrade triggered a selloff. The stock lost about 2%, after closing the previous session higher. It has moved up 19% since the beginning of the year.

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