Seeking Alpha
Profile| Send Message|
( followers)  
For Intel (NASDAQ:INTC), it’s all a matter of perspective. The bulls look at the company’s fourth-quarter results and see strong revenues and profits, and conservative forward looking margin guidance. The bulls see the quarter’s disappointing gross margins as a reflection of start up costs for the company’s 45 nm production lines and other temporary factors. The bears look at the same report and see a company suffering from shrinking margins, due to a brutal price-driven market share war with Advanced Micro Devices (NASDAQ:AMD).

I have a prodigious pile of post-quarter research sitting on my desk at the moment, and I don’t see much evidence that anyone has come out of the quarter with a new point of view. When it comes to Intel, apparently, you are either with them, or you’re against them.

Here’s a rundown on the research, divided into two camps: bulls, and, well, let’s not call them bears. Let’s call them non-bulls.

Still Bullish!

  • Glen Yeung, Citigroup: The timing of Intel’s improving operating margins has been pushed out, given weaker [gross margins], but the march toward 30% operating margins continues forward. Particularly given the margin restraints are temporary start-up costs, we remain positive on the stock, despite this setback.
  • Chris Caso, FBR: Intel posted better than expected revenue, with improvement in product mix and ASPs - in striking contrast to AMD’s revenue miss and ASP decline - suggesting that Intel’s mid-06 product launch has begun to have an impact…Intel [can] afford to be conservative on margin guidance, since the cost cuts allowed the company to maintain consensus EPS. We think this provides Intel with flexibility to apply price pressure if it so chooses, but also leaves Intel plenty of room for margin upside (and likewise, plenty of downside for AMD, given AMD’s aggressive guidance targets.)
  • John Lau, Jefferies: Based on AMD’s pre-announcement last week and Intel’s results, we believe that there is clear evidence of Intel’s gaining lost share at a rapid pace…We believe that Intel will continue to gain share throughout 2007, driven by a superior product portfolio across all categories.
  • Sumit Dhanda, Bank of America: We believe gross margin outlook reflects a great deal of conservatism for ‘07, given improving ASPs - up 5% [quarter-over-quarter] on a blended basis, driven by strong ASP gains in desktops/servers…expectations for lower unit cost throughout ‘07 and…a much improved inventory situation.
  • John Barton, Cowen: It appears that Intel continues to regain share in the server market with double-digit growth for second consecutive quarter driven by the rapid adoption of its Woodcrest platform…while [gross margin] guidance of 50% in ‘07 was slightly below prior estimates, we expect [gross margins] to normalize as startup costs associated with ramp of 45 nm process technology decelerates in [the second half].
  • Cody Acree, Stifel Nicolaus: With INTC seeing revenue at the high end of estimates, the beginning of spending curtailment and setting a gross margin target that we believe should be easily surpassed through the second half, we recommend investors use yesterday’s weakness as an opportunity to immediately build positions.
  • Krishna Shankar, JMP Securities: We recommend investors continue to accumulate the stock given the attractive valuation at 16x 2008 earnings, 2% dividend yield, and the prospect for better second-half 2007 earnings growth driven by the Vista PC upgrade cycle, better cost controls, and potential moves to jettison money losing business segments such as NOR flash memory.
  • Hans Mosesmann, Nollenberger Capital: Intel has regained competitive footing, and as a result we expect the company to regain unit market share while benefiting from benign ASPs due to the new [Core 2 Duo] microprocessor lineup. We expect gross margins to increase throughout 2007 on 65 nm efficiencies and view the Vista O/S launch as a positive driver for the PC industry.

  • Still Worried!

  • Tim Luke, Lehman: It appears that Intel is using price as a means to regain share…estimates may need to be adjusted lower to reflect a challenging pricing environment ahead…we expect the company’s gross margins to be pressured near-term, despite improving execution more recently on share gains (likely in server and potentially in mobile) and product roll-outs. It is this overhand on GM expansion that limits our enthusiasm on Intel’s shares.
  • Eric Ross, ThinkEquity: While our initial reaction was to turn more bullish after witnessing Intel’s strong Q4 revenue performance, depressed gross margins quickly disappointed us and soured our view…Our view that Intel has closed the technology gap with Advanced Micro Devices remains, and with the only difference now pricing, we expect Intel to regain some lost market share in 2007, albeit at the expense of margins.
  • Eric Gomberg, Thomas Weisel Partners: Despite Intel’s current processor superiority we are reluctant to recommend shares…we are concerned that Intel’s technology story does not get better from here - specifically, we believe its window of technology leadership is likely to close when AMD introduces new 65 nm/quad core products in late 2Q and 3Q.
  • Rick Schafer, CIBC: While encouraged by management’s turnaround efforts, we remain concerned with the seemingly entrenched pricing environment. We view shares as fully valued.
  • Mark Lipacis, Prudential: We think investors will find Intel’s lack of leverage, especially off cyclical low gross margins, increasingly disappointing, and lead them to ask whether Intel’s business model challenges are merely cyclical - or secular in nature…We expect the industry to transition to a true duopoly whose natural equilibrium is something closer to 50% share for both. We believe that the process of redeveloping the business processes Intel learned over the past decade, while it was the clear and dominant PC MPU force, will continue to be challenging for the company. We remain Underweight the stock.
  • Michael Masdea, Credit Suisse: We remain concerned that the increasing MPU competition, oversupply risk and decreasing value-add of MPUs will weight on INTC…We reiterate our long-term Underperform rating as slowing PC growth is compounded by greater competition and a reduced value proposition for processors.
  • Christopher Danely, J.P. Morgan: While the stock appears cheap, we remain Neutral due to our belief of additional estimate cuts driven by lower gross margins.
  • Charlie Glavin, Needham: We maintain our Hold on INTC, as this was an inauspicious start to 2007 given the lack of leverage from its 4Q earnings, and implied in its 2007 guidance…We feel the ongoing capex binge by Intel/AMD will negate much of the cost savings, forcing both stocks to trade in a consolidated range…we’d refrain from buying above $20 for a high-multiple stock in a mature sector.
  • Intel was down 90 cents yesterday at $21.40. AMD was up 4 cents at $18.17.

    INTC/AMD 1-yr comparison chart
    INTC AMD 1 yr comparison

    Source: Intel: You're Either With Them Or Against Them