Don't worry, everybody got the license plate on that truck. I-N-T-C.
Intel's Bombshell: TSC Coverage
European Early Update: One Word -- Intel
Asian Markets Update: Intel Whacks Asian Tech Shares
Spread the Word: Tech Companies Plenty Exposed Over There
More Than 1,000 Funds Get Clocked by Intel Warning
Intel's Warning Wreaking Havoc in After-Hours Action
warning that third-quarter revenue would take a hit from weaker-than-expected sales in Europe has caught Wall Street more flat-footed than
Dave Kingman on a
Catfish Hunter curveball.
"I have never seen more people on one side of a trade than I did
Thursday," said Fred Hickey, editor of the
newsletter and a well-known Intel bear. "I know short-sellers who have completely cleaned out their October
puts because they were certain Intel would make the quarter. If someone had asked me what the chance was that Intel would miss, I'd have said zero."
Hickey does own some Intel puts, but none expiring in October, which would have appreciated dramatically when options start trading Friday. He laments that his near-term faith in Intel kept him from buying any.
But it's easy to see why he didn't. Ever since
U.S. Bancorp Piper Jaffray
analyst Ashok Kumar downgraded Intel in early September, nearly every brokerage covering the stock has come out to support it. The lone dissenting voice belonged to
Banc of America Securities
Rick Whittington, who downgraded Intel last Wednesday, but guiltily reversed his position just a few days later with an upgrade to a higher price target.
Even Kumar, who hasn't strayed from his position that PC demand looks too sketchy to warrant the table-pounding most of his colleagues have been doing, thought the stock looked cheap enough yesterday to warrant calling it a good
trading buy to his firm's sales staff.
It's reasonable to expect that a number of Piper's salespeople have just made one of the worst trades of their careers. And they, like so many others, will be wondering how they could have been caught so off-guard. Intel had given investors no indication that business was anything other than brisk.
The River Niles
Dan Niles, an
bull on the semiconductor and PC industries who just Thursday issued a note on Intel titled, "Turns at the Quarter End Are a Beautiful Thing," freely admits that he got burned. (Lehman Brothers hasn't underwritten for Intel.)
"We had managed to talk to the company. Yeah," he says. "And pretty much, the quarter started off better than anyone expected, including the company. But in our note -- which, I freely admit, we looked like idiots putting up this morning -- we noted that our one concern was Europe."
Niles notes that the most-recent deterioration of the euro has increased the cost of personal computers 15% to 20% for European consumers. But he's optimistic that the rest of the globe will make up for the European weakness, even though he calls the outlook for European PC sales, to which Intel's own sales are tethered, "a disaster."
Niles therefore doesn't plan to cut Intel's rating from the strong buy he currently maintains on the stock. "I'm still sticking with the statements I've made," he says. "I still believe that we're going to have a big product cycle in software coming. I still like it."
Peck's Bad Boy
Others aren't as sanguine. Even if most of the weakness is indeed concentrated in Europe, sales elsewhere don't appear strong enough to make up the difference.
"This is not a European problem," says
Drew Peck , who rates Intel a neutral. "This is a broad issue in the global PC business. Corporate demand has been dead for the last 18 months. The entire business is on the shoulders of the consumers, who are notoriously fickle." Peck is particularly worried about the possibility of declines in semiconductor prices as inventories build. "We still have that to go through. This is not a one-quarter phenomenon. It's going to persist for some time. There's no light at the end of the tunnel for the PC makers or Intel." (SG Cowen hasn't underwritten for Intel.)
The effects of Intel's warning could be far-reaching. For all of 2000, analysts have clung to their expectations of a
second-half surge in demand for personal computers and the components their manufacturers need to assemble them. Again and again, whenever something has threatened that hypothesis, the bulls have turned to Intel for reassurance. Reports of rising PC inventories. Falling prices in the spot
DRAM market. Even the entreaties of
, which this spring
warned that sluggish PC demand from corporations would depress its revenue growth. In each instance, Intel's claims that its chips were in short supply became ample evidence that the second-half story was still on track.
Unfortunately, the second-half story has never looked less tenable than it does right now.