Intel Shares Slide Ahead Of Earnings, Look Technically Oversold

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 |  About: Intel Corporation (INTC)
by: Selerity Research

By Brendan Gilmartin

Intel (NASDAQ:INTC) is slated to report Q3 2012 earnings after the closing bell on Tuesday, Oct. 16. Results are typically available between 4:05 p.m. ET and 4:15 p.m. ET, with a conference call to follow at 5:30 p.m. ET. Other tech names are often impacted by the results, along with related ETFs such as the PowerShares (NASDAQ:QQQ) and the Market Vectors Semiconductor ETF (NYSEARCA:SMH).

  • Intel is seen posting EPS of $0.50, the midpoint of analyst forecasts of $0.47 to $0.56 (source: Yahoo Finance).
  • Intel warned in September that it expects third-quarter revenue to be $13.2 billion, plus or minus $300 million ($12.9 billion to $13.5 billion), compared to the prior range of $13.8 billion to $14.8 billion. The consensus is $13.20 billion.
  • Intel stated in September that the expectation for third-quarter gross margins is now 62%, plus or minus one percentage point. That's lower than the previous expectation of 63%, plus or minus a couple of percentage points.

Keep an eye on the following guidance measures for the Q4 2012 period:

  • Revenue guidance, which is estimated at $13.81 billion.
  • Gross margins, which have been running in the mid- to low 60% area. A lower adjustment could be negative.
  • Hewlett-Packard (NYSE:HPQ), which lowered its FY 2013 earnings guidance on Oct. 3 due in part to "the challenging environment."

Recent News

  • Oct. 10: According to Gartner, worldwide PC shipments dropped more than expected by 8.3% to 87.5 million units in the third quarter of 2012, based on overall PC weakness and the transitional period ahead of Windows 8.
  • Oct. 9: R.W. Baird cut its price target on Intel from $32 to $26, based on high inventories and weak end-demand, according to an article on Barron's. Similarly, Nomura Securities reduced the Q3 EPS estimate from $0.55 to $0.52 amid concerns over gross margins.
  • Oct. 8: Bernstein Research downgraded Intel from Market Perform to Underperform, according to an article on Barron's, and reduced the price target from $24 to $20. The firm noted that upside is limited due to reduced pricing power for microprocessors.
  • Sept. 7: Intel warned revenue and gross margins for the third quarter are forecast to come in below the previous outlook, due to "weaker-than-expected demand in a challenging macroeconomic environment." The company pinpointed several specific areas: 1) customers reducing inventory in the supply chain; 2) softness in the enterprise PC market segment; and 3) slowing emerging market demand.

Technical Review

Intel shares have come under heavy pressure in recent months, dropping to their lowest level in a year. Following the free fall, however, there are several signs pointing toward a potential reversal:

  1. The recent revenue warning in September appears priced in.
  2. The Relative Strength Index (RSI) is below 30 -- a level considered oversold.
  3. The MACD is coming off depressed levels.
  4. The candlestick from Oct. 11 represents a classic "hammer" following the recent pullback.

Source: StockCharts.com.

Summary

Intel shares have come under heavy selling pressure in recent weeks, following a revenue and margin warning back on Sept. 7, signs of a depressed PC market, a challenging macroeconomic environment, and rising inventories. But with the shares at their lowest level in close to a year, a possible Windows 8 refresh cycle, and oversold technical readings, Intel could be due for a bounce as long as Q4 guidance meets estimates.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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