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Wednesday August 11, 2010
Intel (INTC): Still bullish despite downgrades
by Paul McWilliams, editor Next Inning  Two downgrades were just issued for Intel (INTC) ; these downgrades are based on the contention that, in so many words, INTC will fail to realize its revenue guidance for its third quarter.I disagree with these assessments and think that these analyst will be proven wrong. Revenue estimates provided by these analysts for all of the last five quarters have been less accurate than what you would expect if you simply pulled random numbers from a fruit jar, And, in each case, their estimates have radically underestimated INTC's performance. While there's always a chance one of these analysts will eventually get it right, I don't see data at this stage of the game to support their gloomy projections. In short, I think they will be proven to be wrong again. 
What we're seeing at this stage of the game are monthly revenue reports from Taiwanese companies and these results are again mixed - just like what we saw throughout Q2. During Q2, I acknowledged these mixed results and until I could get my hands on specific data points late in Q2, maintained a cautiously optimistic outlook for the sector as well as for INTC. However, as the critical data points became available, my optimism increased that INTC would not only top its gross profit guidance, which I staunchly predicted would be the case throughout the quarter, but also report record revenue for Q2. While the revenue estimates from all 41 analysts covering INTC missed the Q2 report by an embarrassing margin, the midpoint of my forecast was little more than a rounding error away from INTC's report. What we saw during Q2 and what I think we're seeing during the start of Q3 are some market share shifts in the PC supply channel that are again confusing the financial community. Without a doubt, there are credible reports of modest softness in European demand for mid to upper range notebooks and while there are no signs of a notable upside in U.S. demand, there are also no credible signs it is notably below seasonal norms. Therefore, on balance I think at this stage it's best to assume these two large established markets will be slightly softer than the seasonal average. However, demand in emerging markets appears to remain strong and demand for servers appears to have accelerated. Interestingly, in some of these emerging markets PC preferences are running towards the high side of the processor spectrum. This is a radical change from the low-end preferences we saw in emerging markets as recently as last year. However, INTC was very clear to acknowledge this change during its Q2 conference call. As a matter of fact, INTC specifically noted during the Q2 call that the average PC buyer in coastal China bought a higher end PC than the average buyer in New York City during Q2. As we look forward to Q3, I'm currently operating under the assumption that INTC will report at the midpoint of its guidance. Meanwhile, the upside I see for INTC this year, which I believe will extend into 2011 and beyond, is the fact that we'll see "Intel Inside" TVs, Set-top-boxes, DVD players and even smartphones during Q4. Learn more about this financial newsletter at Paul McWilliams' Next Inning. |
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