• July 6, 2015, 10:44 A.M. ET

Intel: BlueFin Sees Production Cuts, Revenue Warning Likely

• by Tiernan Ray

Boutique research house BlueFin Research Partners this morning warns regarding Intel (INTC) that “investors may want to consider lightening positions” given what author Steve Mullane argues are production cuts in the company’s chip output.

Mullane writes that there is “more negative news with the PC market” to come this summer, and that the company is likely to cut its revenue outlook for this year:

Not surprisingly, INTC’s Q2 production output and Q3 outlook are significantly weaker than Street consensus revenue estimates. As a result, we expect INTC to revise calendar 2015 revenue estimates downward when they release earnings on July 15th. But the company’s late moves to adjust production levels likely means another unwanted inventory build as well. With Win- 10 not providing much of a catalyst in the short term, we believe the weak PC Market environment will continue to adversely affect the PC suppliers through the summer months. While we think much of the PC weakness is largely built into the stocks including INTC, the lack of Back to School demand could drive PC shipments even lower than the already lowered investor expectations. Until the full releases of their Skylake platforms in the latter half of Q3, investors may want to consider lightening their INTC positions until PC demand stabilizes.

Spending on equipment could slow as production of 14-nanometer chips at Intel’s “Fab 24″ factory in Ireland has seen delays:

Our latest checks now indicate that a significant portion of 14nm equipment installs at this site has now been pushed into Q1:16. This delay coupled with the delay of the P1274 (10nm) pilot line equipment schedules in Q4 have the semi equipment suppliers anticipating a further $300-$400M cut in capital spending by INTC this year.

Mullane details production cuts that he’s construed, without saying how he comes about this information:

Intel production levels declined 2-3% sequentially in June, with the 14nm production ramps largely offsetting the 22nm production declines. For the first 10 weeks of the June quarter overall production levels were on a steady 2-3% decline versus Q1, but our recent checks indicate a sudden 5-6% decline in the second half of the month of June. We believe INTC underestimated the degree of weakness in the PC market and is finally taking measures to reduce production levels. The fabs impacted in the decline include P1270 (22nm) wafer starts at Fab 28 (Israel), Fab D1C (Oregon), as well as legacy products at Fab 11X (New Mexico) and Fab 24 (Ireland). Our latest production estimates for the June quarter indicates an overall sequential decline of 3-4%. Figure 1 depicts the excess inventory levels with the gap between our production level estimates and the revenue consensus for Q2 and Q3.

Intel shares today are 14 cents, or 0.4%, at $30.41.