This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Investors' Misperceptions Punish Intel

SANTA CLARA, Calif. ( TheStreet) -- Intel (INTC - Get Report) crushed analysts' earnings estimates last Thursday as the chipmaker reported higher-than-expected revenue. The stock, perversely and bafflingly, fell 3.2% the next day.

Analysts explained the share-price decline this way: Intel may have reached peak profitability, and the only way forward is down. Still, such a prospect in the infancy of an economic recovery after the deepest recession in eight decades is a difficult thesis to accept. (Fourth-quarter net income increased more than ninefold to $2.28 billion from a year earlier.)

The semiconductor industry is cyclical -- it follows the ups and downs of the economy -- and is correlated to the stock market. So the contention that Intel has reached its zenith in earnings would require investors to believe that the biggest semiconductor producer in the world is going to stagnate as the economy begins to grow again. That would also lead investors to think that the industry as a whole will decouple from the stock market, which is improbable.

Intel, which posted the highest sales in more than in a year in the fourth quarter, said the gross margin -- the portion of sales remaining after deducting the cost of production -- was a record 65%, though the margin will slip to about 61% this year. That outlook sparked concern of peak earnings, but it's likely the comments were designed to temper expectations given uncertainty about the strength of the global rebound. Raising expectations is easier than lowering them if 2010 doesn't pan out as the company hopes.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $124.75 0.00%
AMD $2.58 0.00%
IBM $160.67 0.00%
INTC $32.47 0.00%
MSFT $41.62 0.00%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs