How Good Were Earnings Really for Intel, Microsoft?

So, there you have it:

Another day, another quarter: Sure, the $2.1 billion investment gain at Intel (INTC Quote) -- almost equal to all of its operating earnings -- was an aberration. So was Microsoft's investment gain of $1.1 billion.

Both companies did the right thing by being opportunistic. (Wouldn't you?!) But, still, the facts remain: Microsoft's operating income -- the money it made from its software biz -- was down 13% on flat revenue. Intel's operating income, meanwhile, was flat. Flat!

And for flat it trades at 43 times this year's expected earnings.

By the time you read this, though, both stories no doubt will have been sufficiently spun by the companies and gullibly swallowed by the analysts.

(No matter what they say, this column's StarTek (SRT Quote) indicator for Microsoft was spot on!)

Then there's Copper Mountain: Unlike Intel and Microsoft, companies that have gone from zero to 80 (as in million) don't get the benefit of the doubt when their earnings don't blow past estimates. While Tuesday's 24% decline may have been a surprise to some of the zealots who thought it would just keep going higher, it wasn't to short-sellers. Why are they short Copper Mountain (CMTN Quote), whose black boxes sit at the telephone company end of a DSL line?

The simple short story: Copper Mountain's growth has been tied to the growth of competitive local exchange carriers like NorthPoint Communications (NPNT Quote) and Rhythms NetConnections (RTHM Quote), which have had a good jump-start on the phone companies when it comes to DSL. But now the phone companies are getting their acts together, and down the road, they could be putting pressure on Copper Mountain's customers. Copper Mountain CEO Richard Gilbert, in fact, had been saying that he would be disappointed if it didn't snare a major phone company as a customer by the end of the second quarter.

Well ... the second quarter has come and gone and no word on a big phone company contract. CFO John Creelman (who, by the way, sounds extremely sincere) says Gilbert now would "probably say he was disappointed he ever made that comment," says Creelman, who has "no comment" on the status of any phone company contracts.

What about the impact of phone companies squeezing out the CLECs? Creelman says the company isn't worried. He says the CLECs are well-capitalized, and they're nimbler and faster at rolling out DSL than the phone companies. What's more, he says, they're focusing more on the lucrative business market rather than the home market, which is the domain of the phone companies. "That's helping drive our business model," he says.

But at what growth rate? One Copper Mountain short told me he expects the story to play out in the form of slower growth rates for Copper Mountain over the next six to nine months. "They're the infrastructure providers to the guys who will be beaten by" the phone companies, he says.

Unless, of course, they get acquired first. Acquisitions are the ultimate weapon of companies whose stocks start to slide; they're also the bane of short-sellers, depending on price. Of course, companies are usually acquired for their technology, and on that score, according to our short source, it's not clear whether Copper Mountain has anything -- other than a solid customer base -- that its big competitors really need. Oh, I can see my email now!