Intel Aims to Please -- Again

The chip giant's preannouncement left little question of a solid quarter. Now analysts are looking for signs of sustained strength.
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SAN FRANCISCO -- Gimme. That's what investors are telling the world's largest chip maker these days. When

Intel

(INTC) - Get Report

reports its fourth-quarter earnings today after the close, investors want to hear of increased orders for all its chips, from the low-priced

Celeron

for budget PCs to the high-priced

Xeon

for servers. Above all, margins, margins, margins.

Investors want results to justify the high prices they've been paying for the stock. Intel has risen 66% in the past three months, outpacing the

S&P 500's

28% gain. The stock closed up 9 13/16 at 139 3/4 yesterday on news that

Lehman Brothers

analyst James Barlage raised his price target to 180 from 135 and on speculation by some analysts that the company will announce a stock split. Intel wouldn't comment on any plans for a split.

So what can Intel investors expect out of today's call? Few surprises, since the company preannounced Nov. 10. At that time, Intel said revenue for the fourth quarter would be up 8% to 10% from the previous quarter to about $7.3 billion. That would be a 12% increase over the fourth-quarter 1997 revenue of $6.5 billion. The mean earnings estimate from analysts for the fourth quarter is $1.07 per share, according to

First Call

, or 9% above Intel's year-ago earnings. The most recent whisper number puts the earnings 3 cents higher at $1.10 a share.

Piper Jaffray

analyst Ashok Kumar expects some other news from the company's earnings announcement today. He predicts the company will announce a 2-for-1 stock split, something that hasn't happened since July 1997.

If there is any surprise, says

Morgan Stanley Dean Witter

analyst Mark Edelstone, it will be in Intel's gross margin, which the company said in November would come in a couple of points above the third quarter's 53%. Edelstone, who sees earnings at $1.12 a share, said margins could exceed the company's estimate: In the fourth quarter, Intel completely changed over to .25 micron technology from .35, cutting as much as 50% off its cost of production. (Morgan is an underwriter for Intel.)

These are good times for chip makers in general and Intel in particular. According to the

Semiconductor Industry Association

, global chip sales jumped 5% in November to $11.4 billion, the highest level since December 1997. And Intel's improved Celeron, which the industry criticized for lacking memory cache when it was launched in April, now makes up 20% of all microprocessor shipments around the world.

As for the current quarter, PC demand remains strong as consumers upgrade their home computers. This may cushion Intel from the annual post-Christmas drop in PC sales, Edelstone said.

Analysts like Edelstone have been adjusting up price targets as Intel surpasses them. On Dec. 8, Edelstone raised his 52-week price target to 150 from the 110 level he held until Nov. 4. Yesterday, Barlage raised his estimate to 180 from 135. Even

Merrill Lynch's

Thomas Kurlak, a longtime Intel bear,

caved in with a grudging upgrade of the stock Dec. 23 to accumulate from neutral.

As far as longtime Intel investor John Burnham is concerned, the analysts are just lately recognizing something he has known all along. The portfolio manager with

Burnham Asset Management

, which handles $170 million in funds, says Intel is leading in a resurging chip market. "We are coming off a rather weak period for chips, and Intel was an underperformer," said Burnham, whose fund is up 22% from a year ago and up 4.3% in 1999. "Now it is an outperformer, and this will carry the stock to levels it never reached before."

The one thorn in Intel's side? Competition from

Advanced Micro Devices

(AMD) - Get Report

, which will announce its fourth-quarter earnings Wednesday after the markets close. Piper's Kumar thinks that despite Intel's boasts of high Celeron sales, it actually lost market share to AMD in the budget-PC sector last quarter. "For Intel, the fourth quarter was relatively weak," said Kumar, who sees earnings coming in at $1.07 for the quarter.

Burnham has no intention of selling and thinks Intel stock will hit 180 as Barlage predicts. As for competition? "That is something one lives with in this business," he said. "Intel seems to be able to lower their prices without hurting margins," he said.