Wall Street Spanks Bottom of Intel's Rookie CFO

There’s a new CFO in town at Intel (INTC). The preceding CFO has moved on to become Chief Operating Officer. The former Assistant CFO is now the CFO. The new Chief Financial Officer received baptism by fire in an earnings conference Tuesday (Jan. 15, ‘08).

You would have thought it was a good quarter. Intel shipped a record number of server CPUs. Mobile CPUs were very strong, with processors and chipsets setting record units. And desktop quad-core shipments were up 40%. The CEO did mention that flash “had a challenging quarter” (p. 2).

Truth be told, stocks as a whole had begun to tank a couple of weeks earlier. In such an environment of fear, it needed but a spark to keep things tumbling.

Sales at Intel, while setting records, nevertheless failed to live up to expectations. Sales in turn affected profit. Also troubling, Intel guided below Wall Street’s expectations for the first quarter. People scanning the headlines read into these figures, the sky is falling.

Intel, however, insisted that as of yet it saw no signs of economic slowdown. Many at the time chose not to believe Intel management. Hindsight is 20/20, it is said. Today we know that Intel was not lying. Other IT companies, such as Advanced Micro Devices (AMD) and Seagate (STX), have reported much the same thing. There’s no slowdown yet affecting these companies.

It was Intel’s NAND flash memory business that had caused the sales miss, not microprocessors or anything else. This is not to say that a worldwide recession won’t happen, and if it does Intel will be affected. NAND sales, however, are down worldwide because of oversupply.

Almost right off the bat, the Intel CFO and analysts were at odds over gross profit margins. For the record, Intel improved its gross margins. The CFO, however, refused to break down estimates for margins for upcoming Q2 through Q4 quarters. He gave an estimate for Q1 and for the year. He could see two points of good news affecting margins for 2008. Beyond that uncertainty.

The unknown variable was competition. Pricing is “a function of the strength of our product roadmap relative to competition” (p. 6).

AMD, after a slow start in ‘07, will continue to ramp Quad-core Opteron throughout 2008. If AMD can get the clocks up of Barcelona, it should give meaningful competition. Depending on the competitive environment, Intel’s gross margin “could go higher, it could go lower” (p. 6).

The analysts for their part didn’t want a breakdown of margins quarter by quarter. They just wanted to know what the forces of evil were weighing down gross margins. The CFO responded, “I don’t have negatives that are hidden in that margin forecast” (p. 5).

Why then is the estimate for the year so low, one analyst asked? The CFO: “It is the gross margin forecast”.

Stalemate. You could hear the frustration in the voices.

The analysts got the last laugh when many went home and “cut estimates and price targets on the stock.” (Tech Trader Daily).

Read the transcript here.

Comments

[xmen:]

My theory on why Intel stock went down so much.
Because of employee stock options.
you forgot to take into account the money Intel has to pay its employees every years because of stock options.
This is just simple math.

on an average an Intel employee gets around 1000 stock options every year.
There are 50000 US employees.

and say you make $8 per option assuming a stock price of $26(1998 price was $19)

8*1000*50000 = 400 million dollars.
Now, if you purposefully pulled the price down so that all stock options are underwater, you dont have to pay your employees anything.

Also, look at insider options exercising.
All Intel execs exercised their options late last year to make sure they got the money.
The employees are typically not that smart and dont anticipate such a price drop and waited until new year to exercise them.

Intel as a company is an extremely horrible company.
someone should talk to SEC about this.

2008 Jan 22 12:44 PM

[Smart1:]

This is a joke, right....???? (above comment)...

Relative to the article, it illustrates that the analysts are not only totally inept but disingenuous. They prove time and time again that they know nothing about the business and, if you don't treat them with kid gloves, they trash your stock. If the SEC is going to investigate anything, it should be the analyst group (and financial media) for fraudulent commentary.

2008 Jan 22 05:34 PM