Intel Continues Post-Earnings Slide

The excitement over Intel’s Q3 earnings report (see earnings call transcript) has already worn off. After peaking as high as $21.60 or so in the immediate aftermath of the release (after hours trading), Intel (INTC) dropped as low as $20 Friday. While this is just a small amount below the pre-earnings close of $20.49, this drop has still created the dreaded “gap and crap” that typically signals a near-term top. The initial excitement (the gap) has quickly given way to eager profit-taking (the crap).

Note that rapidly fading excitement is nothing new to INTC. The chart above shows how INTC peaked in late August after its revenue guidance that beat expectations at that time. INTC’s stock did not recover until the day of the Q3 earnings report. Two faded gaps in a row at 52-week highs are bright red flags. (Even during the last bull market, INTC peaked one year into that cycle and revenues and margins peaked a year later!)

The graph below was captured intra-day right after the low at $20.

*Chart created using TeleChart

Friday’s fresh selling was apparently driven by growing fears that PC makers have over-built in anticipation of the upgrade cycle for the Windows 7 release. In my review of INTC’s latest earnings, I claimed that we should not expect an encore to that stellar report in the near future. I cited high risks to holiday sales as one of my concerns in addition to a likely peak in margins and expectations for “only” a seasonal increase in revenue for Q4. (Note well: contrast INTC’s revenue expectations to AMD’s expectation that it will generate a less-than-seasonal quarter-to-quarter increase).

I will likely only be a buyer again once some fresh catalyst appears: a steep discount to current prices, signs that the economic recovery will be even more robust than expected, etc…

Be careful out there.

Full disclosure: no positions.

Comments

[GimliJan:]

In other words you will buy only on events that are earnings drivers and not on the dips?
That doesn't make any sense to me!
I bought when it dropped to my estimated value buy price $16.26 on 11/4/09. I will be buying again below $17.50. I expect a pullback during the first quarter leading up to the earnings announcement for the holiday season. Intel is not going out of business and like Apple is the uncontested leader in it's field and the leading innovator or purchaser of innovative companies.
Maybe since I am new to investing I don't understand your underlying philosophy behind buying only on events that should drive the price up? Please educate me as I do wish to learn.

Thank you,
Gimli

Oct 18 12:42 PM

[AuContrarian:]

Bad read on the tape . INTC investors piled in after the August pre-announcement, when INTC dipped below 19, then sold the announcement, which brought in shorts. Everyone likely will buy back in on this dip, push out the shorts, upgrades hit after the stock hits 21, and it moves to 24 by Thanksgiving, 26 by Jan 15. Buyers now will profit the most in this farce.

Oct 18 03:12 PM

[Smart1:]

These guys that are thinking that the PC manufacturers are building a bunch of inventory just don't understand the business. There is no industry that is more inventory aware than the surviving PC guys (unless it is the toy mfrs just before Christmas or an ice cream company when the power goes out.

Besides that, a huge % of Intel's business is in Asia which doesn't have anything to do with America consumers. Also, Intel indicated very clearly that channel inventory was not a problem. I would bet my house that they know a hell of a lot more about it than AMD or any of these moron analysts...

Oct 18 04:21 PM

[paul.ottelini:]

I'm sure you know alot more about Intel's business than the CEO himself does. There is a huge need for upgrade out there with or without Windows 7 software. This new operating system will only add a huge boost to that badly needed systems upgrade. Notebooks have been an absolutely huge success and the netbooks have added an extra boost to the mobility craze. And if you were listening carefully to the past 2 or 3 quarters of conference calls, you would understand that with the huge success of mobility comes the huge need for more powerful energy efficient servers. And if Intel has been very profitable progressively in the past few quarters with large surprises over expectations, regardless of the huge recession we just went through, they will only be much more shockingly surprising in the upcoming quarters over expectations. This will set the stock up for a huge catch up game with the strong results Intel has been showing lately. And don't forget that they currently have over $13 billion in cash. And again, if you have been paying close attention to their conference calls, Intel goes on a huge stock buyback spree when their cash level is over $10 billion. This will add a huge buying pressure on the stock near term, making your prediction look like crap.

Oct 18 08:48 PM