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Summary

  • The PC business is alive and well.
  • Gross Margin is at near record level.
  • No apparent problems with 14nm.

On June 12, Intel (NASDAQ:INTC) issued a press release raising guidance for the 2nd quarter on the low end by $900 million from $12.5 billion to $13.4 billion and the high end by $500 million from $13.5 billion to $14 billion. This represents 7.2% on the low end to 3.7% on the high end. The midpoint moved from $13 billion to $13.7 billion or 5.4%.

The above paragraph had eight dollar signs and could bore anyone into a deep sleep.

What did they say; what is the message?

The $700 million midpoint increase represents about 4.5 days of output. If management had concerns about the third quarter they would have held about half of those shipments to apply to the third quarter. The remaining $350 million upside wouldn't have justified a guidance bump.

So, the third quarter is in the bag, and with seasonal effects will be about a billion dollars above the second quarter. The second quarter is a slam dunk to come in at the high number of $14 billion, so the third quarter has a good shot at $15 billion. If the third quarter is in the bag at $15 billion, 4th quarter is a probable $15.5 billion.

The new guidance included a rise in the MIDPOINT of gross margin of 1% to 64% plus or minus a COUPLE of points. So, gross margin is very healthy and certainly discounts the rumors of yield issues on 14nm or any other imaginary problem that could affect gross margin. At 64+ gross margin, Intel is operating as well as it ever has.

The way I see it Intel will finish the year with record revenue of $57.3 billion and 64% gross margin of $36.7 billion. At that level of business, net profit should come in at 40% of gross profit or about $14.7 billion. Earnings for the full year should be about $2.95 per share.

With a few other good things happening, Intel should sport a multiple of 15, and, therefore, a stock price of $44+.

Oh, back to the 2nd quarter: $14 billion at 64% gross margin is $8.96 billion and 40% of that is $3.58 billion or $.72/share. Consensus of 39 analysts is $.52/share and a spread of $.45 to $.55/share. Apparently the analysts don't see this one coming down the rails.

We got a $2 bump on an upgrade to guidance. When the real numbers are announced with a 38% beat and strong guidance for the third quarter, we can expect about a $4 one day pop. The good news should keep coming with the 14nm Broadwell shipping in products by the holidays.

I am buying Intel Jan 2016 40 call options hand over fist.

Source: What Is Intel Telling Us?