What's So Great About Intel's Earnings?

Intel’s second quarter results reflect improving conditions in the PC market segment.

- Paul Otellini, CEO, Intel

Everybody is gonzo about Intel’s (INTC) second quarter earnings report after today’s close but I just don’t see what’s so great about it.

They beat revenue and earnings estimates of $7.28 billion and 8 cents a share coming in at $8.0 billion in revenue and 18 cents a share - excluding a huge fine by the European Commission. That’s fine but fundamentally the numbers are still pretty weak. Revenue was down 15% and net income 35% from the year ago period. They forecast $8.5 billion in revenue for the third quarter but they earned $10.2 billion in last year’s third quarter.

Even Intel management is talking about a bottom in the 1st quarter and a recovery going forward, but I just don’t see it in the numbers.

Also, it’s worth pointing out that the stock is expensive at current levels. It’s trading up to $18 in the after hours. Back out the $2 in net cash and investments on their balance sheet and it’s a 24 trailing multiple on 68 cents in earnings over the last 4 quarters. Add in the 10 cent upside surprise in today’s report and analysts are looking for 66 cents this fiscal year - also a 24 forward multiple. Where’s the upside from here?

Click to enlarge:

Disclosure: Top Gun has no position in Intel (INTC) shares but is short the QQQQ of which Intel is a component.

Comments

[Graham and ...:]

Crummy earnings versus a year ago, beat expectations, lackluster on a forward going basis. Not the strongest buy case.

Jul 15 01:52 PM

[KIT:]

TV is pumping INTC as a leading indicator of the general market.

After 1999 into 2001 INTEL fell with the rest and did not lead anything for the 2003 2007 run up.

It hard to be a logical investor in this quick buck follow the rumour day trading Crammer world.... does anyone use cashflow anymore?

Jul 15 02:43 PM

[Mad Hedge F...:]

Good news. ) Intel’s blowout earnings yesterday made crystal clear who is going to be buttering our bread for the next few decades (see income statement at www.intc.com/releasede...). More than 80% of their earnings came from foreign sources, far and away the main driver of economic activity in the world today. If it weren’t for the outrageous $1.4 billion antitrust fine from the EC, the earnings would have been even better. If you are going to own equities, make them BRIC ones. If allocation restrictions won’t let you go 100% foreign and you must buy the US, make sure they are American companies that are really foreign ones in disguise. Intel (INTC), Oracle (ORCL), Hewlett Packard (HPQ), IBM (IBM), and Microsoft (MSFT) all get 70%-80% of their earnings from abroad. You don’t want to own anything that is dependent on newly impoverished Americans buying their products.

Jul 15 03:19 PM

[TeresaE:]

A breath of reality in a breeze of blind optimism.

People are being blindly optimistic. We are a consumer driven society and as soon as the government runs out of ways to waste money (the big ones, not the year over year insanity) "solving" this crisis, then reality may begin to show itself to the hopeful.

And it will hurt.

Eventually the stimulus market is going to dry up--it has to.

For all countries that have tried, from the US to China, Germany, UK, France, etc, etc.

The piper will not forever be denied and I firmly believe that the government is at least 40% of all our activity, the banks another 40% and that leave 20% or so for us all to divide.

Once creditors get tired of smoke and mirrors, there isn't going to be much left to go forward with.

Jul 15 06:29 PM

[paul.ottelini:]

You seem to be pretty much short sighted.
Intel's earnings blowouts, now 2 quarters in a row, demonstrate Intel's ability to come back to historically strong earnings growth very quickly. And the large gap of $700 million in revenue to the upside for last quarter and the guidance of the upcoming quarter shows how clueless are the pessimistic analysts on Intel. And investors need to concentrate on the fact that Intel is doing this huge comeback during a very rough period in the global economy. Another huge upside surprize is on its way with the massive Windows 7 upgrade cycle. Do yourselves a big favor and completely discount these very short sighted negative blos on Intel's very inspiring earnings.

Jul 16 02:53 AM

[OldLimey:]

Intel's earnings were fairly shabby. The spin put on them by the folks in Wall Street who just want our money (and by their advertising conduits in the media) was very shabby - but only to be expected.

Jul 16 10:46 AM

[CPST1:]

The fundamental is the underlying change or Moore's Law.
Granted you can buy Pentium 4 Desktops on eBay all day for under $100 computers.shop.ebay.co... and there's a reason. This SA article seekingalpha.com/artic... from April goes into depth about the newer chips Intel is making.

The basis is that in the same manner a SmartPhone will soon have the power or certain capacities as today’s computer, the new brand of computer in much the same factor will have a power of three if compared with today's common system architecture. Therefore, using less power to run the CPU to save on cost as to use less physical space to host the computer system... In short order a company like that of Rack Space (RAX) would use less and less physical space to accomplish more and server load over any extended period of time while optimizing power usage relative to system performance.

Jul 17 03:29 PM

[Robert0713:]

As the Chinese have found out, they are. As are the BRIC; their fascist structures keep the money in the hands of the few, too. They can't sell their goods and services domestically, so they depend on the American "middle class" as well. That the American "middle class" has been killed by the Bushies doesn't register with them. Or you, apparently.


On Jul 15 03:19 PM Mad Hedge Fund Trader wrote:

> You don’t want to own anything that
> is dependent on newly impoverished Americans buying their products.

Jul 18 09:32 PM

[KIT:]

My last portable was VISTA ready, I never put VISTA on it as MSFT has never ( yes never got a OS right first time ) I actually hold little hope 7 will work either, and as I bought 3 years go I dont need a new computer at all. Many people bought computers in the good years ( 2006 - 7 and are in the same condition.


On Jul 16 02:53 AM paul.ottelini wrote:

> You seem to be pretty much short sighted.
> Intel's earnings blowouts, now 2 quarters in a row, demonstrate Intel's
> ability to come back to historically strong earnings growth very
> quickly. And the large gap of $700 million in revenue to the upside
> for last quarter and the guidance of the upcoming quarter shows how
> clueless are the pessimistic analysts on Intel. And investors need
> to concentrate on the fact that Intel is doing this huge comeback
> during a very rough period in the global economy. Another huge upside
> surprize is on its way with the massive Windows 7 upgrade cycle.
> Do yourselves a big favor and completely discount these very short
> sighted negative blos on Intel's very inspiring earnings.

Jul 19 11:22 PM