Chip makers are on everyone's hit list these days.
Falling price realisations are set to impact the profitability of leading chip maker Intel Corporation(NASDAQ:INTC), according to Bernstein Research's Stacy Rasgon, who downgraded the stock to Underperform from Market Perform and also reduced the price target to $20 from $24.
He warned that the stock had run out of upsides in the prices it commands for its microprocessors.
"Solid success from their “Good/Better/Best” strategy around Core i3/5/7 products. In fact, the company has seen significant mix shift toward Core i5 […] We believe there is material risk of Intel’s notebook SKU distribution shifting back in favour of Core i3 products over the next 12-18 months given a push to bring Ultrabooks down to true mainstream price points (almost all of which so far utilize Core i3 processors) […] We believe such a mix shift could drive a 7-10% decline in mainstream notebook ASPs for Intel in 2013," he wrote.
What this means is that the company could end up with more consumer sales and lower corporate sales and this could result in lower average price realisation.
According to Rasgon the company's microprocessors could see average sale price dip to $88.84 next year, and $85 a year later from its current price of $94.17 per unit.
Excluding its Atom range of processors, which re lower priced, shipments have been estimated to rise 2.4 percent this year and 2 percent in 2013.
This translates into revenues of $53.92 billion in 2012 and $54.22 billion in 2013, while gross margins are expected at around 62 percent this year and 60.5 percent next year.
Shares of INTC slid 2.73% to $21.89 on Tuesday and AMD fell 0.65%.