With its fourth-quarter financial report due after the closing bell Tuesday, Intel ( INTC) finally closes out a punishing 2004 that sunk its stock by almost 30%. The world's largest chipmaker will be the first major semiconductor company to detail its results for the past three months as earnings season begins to shift into high gear. Investors are keyed into revenue and earnings, but they also will focus on how well the company has shed excess inventory and expanded gross margins. In addition, Intel will disclose financial targets for its current first quarter and fiscal full year, and the company's assessment of the business environment -- present and future -- will send ripples beyond its own stock, which closed Monday up 8 cents to $22.88. Intel accounts for almost 15% of worldwide semiconductor revenue -- twice as much as No. 2 chipmaker Samsung Electronics -- and its chips are used in four of every five computers manufactured. Stocks that should feel the Intel vibrations include Advanced Micro Devices ( AMD), Intel's main competitor in the market for computer microprocessors and flash memory; semiconductor equipment makers such as Applied Materials ( AMAT) and Novellus Systems ( NVLS); and PC makers such as Dell ( DELL) and Hewlett-Packard ( HPQ), which are major purchasers of Intel's processors. For the fourth quarter, analysts, on average, expect Intel to earn 31 cents a share before items on sales of $9.4 billion, according to Thomson First Call. The company's bottom line also will likely be affected by a benefit of as much as $6 billion, due to a special tax break for companies that bring their foreign-based earnings back to the U.S. During Intel's midquarter update on Dec. 2, the company
bumped up its sales guidance to between $9.3 billion and $9.5 billion, but essentially left gross margins expectations untouched, anticipating that they would come in between 55% and 57%. The company cited strong demand for its architecture products, which include microprocessors, chipsets and motherboards.
Analyst Apjit Walia of RBC Capital has the highest sales estimate on Wall Street at $9.6 billion. He said Intel should be able to hit his target as the company finished the quarter with solid demand. Intel's capital expenditures are expected to end the year between $3.6 billion and $4 billion, and research and development spending are expected to come in at roughly $4.7 billion. However, just as significant to Intel's revenue guidance boost a month ago was the company's announcement that it would cut inventory by the end of the December quarter by several hundred million dollars. The news sparked a brief rally at the time in Intel shares, and proof of its accomplishment could stop the subsequent decline suffered since the prediction. For the first quarter -- a typically weak period for Intel as consumers take a break from holiday-driven spending -- analysts are expecting earnings of 28 cents a share on sales of $8.94 billion. That translates to a sequential decline of 5%, in line with historical averages. (A month ago, Goldman Sachs analyst Andrew Root noted that because of a quirk of the calendar, the first quarter of calendar 2005 will be an extra week long, which had removed some risk of estimates for that period.) Investors, however, are no less eager for possible upside predictions. While Intel CFO Andy Bryant declined to provide much detail on the first quarter during the midquarter update in December, he did say that factory utilization could be expected to fall no further than it had in the fourth quarter. If that happens, investors could expect a resulting expansion of margins, which appears to be a prerequisite for an assault on the $25-a-share price level that has repelled the stock for nearly six months.