Intel's Outstanding Quarter is Good News for the Economy

Jul.13.10 | About: Intel Corporation (INTC)

Intel Corp. (NASDAQ:INTC) reported an outstanding quarter, with revenue, EBITDA, EBIT and earnings all well ahead of expectations. In addition, various back-of-the-envelope measures of capital efficiency also improved, including ROE and EBITDA-to-Capital. Gross margin was above the top end of guidance.

More importantly, Intel reported that demand was strong and PC and server segments are healthy. The company raised guidance for the next quarter -- the low-point of revenue guidance is now above the current consensus estimate. Capital spending guidance is also up.

This is good news for the economy. It demonstrates that a leading company continues to invest in IT. An assumption could be that companies are spending on technology in order to prepare for growth, or to wring out efficiencies from their existing workforce. Based on the Intel report, one can assume that companies are spending on technology in order to prepare for growth, or are wringing out efficiencies from their existing workforce. Companies do not invest in IT unless they think there is a reason to do so -- such as preparing or managing for orders. This is an interesting confirmation of a positive trend Accenture (NYSE:ACN) reported recently. Intel's report could be interpreted in varying degrees of positive news; there is nothing negative about it.

On the conference call that starts at 5:30pm eastern time, I would like more information about how much of this demand is domestic versus international. But either way, this is a solid quarter.

The question is, what to do with this news. The market has already moved up quite a bit from the recent bottom, and plenty of companies are left to report. But many hedge funds are probably still short and will need to cover as they go neutral or long. So aggressive investors should probably just buy tech across the board. High-quality tech like TXN, MU, and SNDK come to mind.

The more cautious should just wait a few days and see if there is any follow through in the market. If there is going to be a rally on demonstrably increasingly positive fundamental news, it will drive a rally that will last for months off this low base.


Disclosure: No positions