RealMoney Silver - Investors Chip Away at Intel

Investors Chip Away at Intel
By Jay Somaney
RealMoney.com Contributor
1/16/2008 1:14 PM EST

Updated from 10:42 a.m. EST on Jan. 15.

Intel's (INTC) numbers were a disappointment last night, which, when combined with the current economic uncertainty and resultant market panic, led to the shares getting crushed. Things are a bit calmer now, but Intel is still taking a pounding -- down 11.7% as I type write this review.

I had expected the company to beat consensus by a penny and also was hoping for a penny raise to guidance given Advanced Micro Devices' (AMD) woes. Clearly, Advanced Micro Devices is fighting back hard to recover lost market share.

Intel reported fourth-quarter 2007 revenue of $10.7 billion, below consensus of $10.8 billion, but gross margins of 58% were better than consensus of 57.2%. Operating expenses checked in at $3.2 billion vs. consensus of $3 billion, but better-than-expected margins allowed Intel to meet consensus earnings of 40 cents per share (before a 2-cents-per-share one-time charge).

Intel has guided the March quarter to $9.4 billion to $10 billion, which is below consensus of $10 billion, using the midpoint of the guided range. Gross-margin guidance was 56% (give or take a couple of points) vs. expectations of 55.5% (give or take a couple of points). Doing a rough, back-of-the-envelope calculation, implied EPS is 31 cents to 32 cents, again below 34 cents consensus going in to the call.

For 2008, Intel has guided gross margins to 57%, which is above consensus of 56.5% to 56.6%. Depreciation is expected to be around $4.8 billion-plus, or minus $100 million. Operating expenses will be $11.4 billion, and finally, capital expenditures will be $5.2 billion.

Intel said it expects PC unit growth to be 11% in 2008, and ASPs should decline in the 3% to 4% range as it does historically year on year.

I think Intel shares remain range-bound in the near term as the market attempts to figure out recession probability, weakening consumer and the interest rate environment.

INTC Preview: The Last Chip Play?

Intel (INTC) will report fourth-quarter 2007 earnings after the close of regular market trading.

The Street expects the company to earn 40 cents per share on revenue of $10.84 billion for the December quarter. For the March quarter, current Street consensus is for earnings of 34 cents per share on revenue of $9.99 billion. For fiscal 2008, the analysts are currently predicting earnings of $1.51 per share on revenue of $41.82 billion.

Here are some things to what to watch/listen for:

server sales;
notebook processor sales;
desktop sales;
will server and notebook sales offset desk-top weakness?
are fears of big weakness in the PC market true?
do Advanced Micro Devices' (AMD) problems translate to Intel's gains?
competitive issues and comments;
market share gains;
gross margins (expectations are for around 55%);
processor ASPs;
product lineup for the year;
net margin improvements due to improved cost cutting;
pricing expectations going into 2008.

At 15 times expected earnings of $1.51 per share for 2008, Intel is not expensive by any means. Given the backdrop of Advanced Micro Devices having some serious issues competitively, Intel is the only way to go for folks wanting exposure to the chip sector.

I expect the company to beat by a penny or so on the bottom line and possibly raise for the March quarter by a penny per share but maintain 2008 estimates.

Good luck whichever side you playing Intel from.