Winter Is Ending for the Intel Bears

Now that Kurlak is gone, more analysts are stepping up and criticizing the company.
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SAN FRANCISCO -- The lovefest is over.

For the past two months,


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coverage on the Street has been close to uniformly positive, with analysts differentiating themselves mainly by tossing out ever higher

price targets.

Ever since

Merrill Lynch's

longtime Intel bear Thomas Kurlak capitulated to Intel's furious rally and upgraded the stock in late December, only four out of some 60 Intel analysts have put hold or neutral ratings on the stock: Ken Pearlman of

CIBC Oppenheimer

, Drew Peck of

Cowen & Co.

, Tad LaFountain of

Needham & Co.

and William Milton of

Brown Brothers Harriman


Kurlak's Feb. 12 departure for hedge fund operator

Tiger Management

left his archrival,

Morgan Stanley Dean Witter

analyst Mark Edelstone, the chief Intel bull, with no strong counterbalance. None of the remaining four Intel bears have Kurlak's clout.

Now new bears are emerging. First came Charles Boucher of

Donaldson, Lufkin & Jenrette

Monday with a downgrade from buy to market perform and a cut in his 12-month price target from $175 to $160. Then came

Nationsbanc Montgomery Securities

analyst Jonathan Joseph a day later. Joseph downgraded Intel from buy to hold and reduced his price target from $150 to $120. (While neither firm is an underwriter of Intel, DLJ is an underwriter of Intel rival

Advanced Micro Devices

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and AMD CEO Jerry Sanders sits on DLJ's board.)

Meanwhile Intel investors are still waiting to hear from Merrill Lynch analyst Joseph Osha, who has worked by Kurlak's side for four years and who took over Merrill's Intel coverage Feb. 22. Beyond emphasizing that he's not Kurlak, Osha has given no hint whether his outlook on Intel is positive or negative. "I have my own style that I've developed over time," he says. "It's not for me to do the job like Kurlak did."

Reports from Kurlak and Edelstone had been must-reads in the semiconductor sector for some time. Kurlak's departure left a contrarian void. "It's really hard to come up with a strong No. 2," say longtime Intel shareholder Ted Bridges, a money manager of

Bridges Investment Counsel

, which manages $1.3 billion in funds. Bridges continued to monitor Kurlak's reports months after it seemed the Merrill analyst's insight had gone cold.


BancBoston Robertson Stephens

analyst Dan Niles is very, very sharp ... but then again, maybe I'm just saying that because I've seen his face on TV for three days straight," Bridges says. (Niles, who has a buy rating on Intel received widespread press attention last week for warnings he made about


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). Bridges says he still follows Edelstone but has been turning increasingly to research generated in-house.

The true test of an analyst's influence on the market is the ability to move a stock with every report. Consider that when Kurlak cut his 1999 earnings estimate on Intel Feb. 4, the stock dropped 6.2% that day, compared with a 1.9% drop in the

S&P 500

. In comparison, on Boucher's downgrade Monday, the stock dropped 2.4% for the day, a negligible change from the S&P. On Joseph's Tuesday downgrade, the stock dropped 6% on a day the S&P 500 dropped less than 1%.

Of the analysts who remain bullish on the stock, only two seem to have the clout to match Edelstone. When James Barlage of

Lehman Brothers

raised his price target from 135 to 180 Jan. 11, Intel stock jumped 8% that day, a day when the S&P 500 fell 1%. And when

Piper Jaffray's

Ashok Kumar raised his earnings estimate on Intel Jan. 6, the stock rose 5% that day, three percentage points better than the S&P. Edelstone last revised his outlook on Intel Jan. 25, by upgrading his earnings estimate, and this helped lift the stock 5% on a day when the S&P rose about 2%.

Bill Fries, money manager at

Thornburg Funds

, which manages $297 million in funds and is an Intel investor, says he pays close attention to Edelstone's calls. Of the rest of the pack, he picks and chooses for different specialties: He turns to Boucher, for example, when he needs a complicated technology explained. He'll turn to someone else for a financial model and yet another person for investor sentiment and market trends. "It takes a mosaic of information," says Fries. "And that's not always embedded in one person."

Fries has been trimming back his Intel stake lately but has no plans for any massive selloff. And that's where the market in Intel stock seems to hang: it rose dramatically between September and January, but since then, it has been volatile. Since Feb. 23, it has dropped from 134 1/4 to close at 109 3/4 Tuesday, its lowest closing price since Dec. 3.

And that leaves Oppenheimer's Pearlman saying: I told you so. "I'm doing a lot of that," he says. "I had gotten really nasty phone calls and emails saying that I don't know what I'm doing. But I've been doing this a long time. I think I understand these cycles and I understand supply and demand."

Pearlman admits that he missed the rise in valuation in Intel stock late last year. He didn't anticipate how eagerly investors would jump on the pickup in PC demand in the third quarter. But he held tight on his hold rating because he felt the fundamentals hadn't changed.

"Revenues and earnings have not grown in two years," Pearlman says. "Now people are starting to come around to our way of thinking."