As Hardware Markets Evolve, Marvell Purrs and Intel Stutters

Goldman Sachs analysts concluded from twenty meetings with hardware manufacturers in the Far East that there is about to be no large fall in demand, and that the second half of the year will be in accordance with the trend in previous years, that is, seasonally stronger than the first half. This applies to makers of computers, hard disks, printers, and mobile telephones. On Intel (INTC) specifically, they see a surge in demand at the end of the current quarter and in the third quarter, with computer manufacturers gearing up for the shopping seasons of the return to school at the end of the summer and Christmas in the fourth quarter.

Before their Far East tour, Goldman Sachs were fairly negative about Intel, with a "Neutral" rating and a target price of $13, versus a current market price of over $16. Now they have substantially raised their estimates up to 2011, with sales and EPS estimates above the market consensus, and their target price is also raised, but only to $15, still below market. They believe that Intel does not deserve a p/e ratio of more than 15 on 2010 earnings, because they think that, beyond the next two quarters, Intel will have a serious growth problem in the age of transition from expensive notebook computers to cheap surfing computers or smart cellphones which amount to pocket computers.

As far as storage and communications chip maker Marvell (MRVL) is concerned, Goldman Sachs found support in the Far East in both the short and long terms, and their recommendation is in line with that: "Buy", with Marvell making the Conviction Buy list. The target price is $14, above market. It seems that all Marvell's engines are running smoothly these days: from cellular processors for RIM (RIMM), through storage controllers for hard disks, a core market for Marvell that has returned to growth, to communication chipsets, wireless, for gadgets some of which are already hot sellers, and wireline, for high speed communications for routers, switches, and computers, another market returning to growth.

Disclosure: Author holds positions in MRVL in his portfolio tracked by "Globes".

Published originally by Globes [online], Israel business news - www.globes.co.il

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.