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The world's biggest chip maker Intel (INTC) has not been having an easy time of late. This seems to have had its effect on the stock movement too. It does appear that the investor is ready to dump the stock at least in the near term. However, the investors are waiting for the quarterly results and outlook on October 16. Will the outlook reverse the fortune of the company? A close look at the industry scenario should throw some hints or guidance to take a fresh call on the stock.

Intel has revised down its revenue estimate in the last two out of the four quarters. While the 2011 fourth quarter revenue guidance was cut after the flood in Thailand had hit the supply chain for PC shipment, the current year's third quarter revenue was reduced citing the PC shipment weakness. This is a big disappointment because the third quarter is normally a strong quarter due to the ensuing holiday season in the fourth quarter. The PC makers usually buy their requirements in the third quarter so that their final product is ready for sale in the holiday season.

Q2

Q1

Q4

Q3

Total Revenue ($ Bln)

13.5

12.91

13.89

14.23

PC Client Group Rev. ($Bln)

8.7

8.5

9

9.4

% of PC Client Group Rev.

64.44%

65.86%

64.8%

66.04%

Data Center Reve. ($Bln)

2.8

2.5

2.7

2.5

% of Data Center Rev.

20.74%

19.37%

19.44%

17.56%

Adj. EPS in Cents

57

56

68

69

GAAP EPS in Cents

54

53

64

65

Analyst Estimates

52

50

61

61

Adj. Gross Margin

64.4%

65.1%

65.5%

64.4%

Figures taken from Intel's site

The above table indicates the importance of PC client group and its contributions in the third quarter. The percentage of revenue from the PC client group dipped to 64.4 percent in the second quarter from 66.04 percent in 2011 third quarter. On the other hand, the revenue percentage from the data center has increased to 20.7 percent in the current year's second quarter from 17.56 percent in the last year's third quarter.

However, Intel did well to beat analysts' expectations of adjusted EPS in the last four quarters. Though the company's adjusted gross margin witnessed an upside in the fourth quarter of 2011, it has been seeing downside pressures in the last two quarters suggesting the weakness in the industry.

If the company finds it difficult to achieve the revenue objective in the traditionally strong quarter, the fourth quarter revenue forecast is more likely to be a subdued one. This is also because of the fact that both Hewlett Packard (HPQ) and Dell (DELL) are seeing a weak PC shipment.

Meanwhile, International Data Corp. or IDC sees PC shipment growth of 0.9 percent for the year 2012 compared to 1.7 percent growth recorded in the year 2011. The research organization had also reduced its compound annual growth rate or CAGR to 7.1 percent for the years 2012 - 2016 from the earlier prediction of 8.4 percent for the years 2012 - 2016.

Secondly, the company will look to gain from the launch of surface tablet PC by the software giant Microsoft (MSFT). However, the success of Microsoft's tablet PC does not guarantee a turn around of the fortunes for Intel stock. This is because of the software company's plan to launch two types of tablet PCs; one is a cheaper version and the other is an expensive one. While the cheaper version will have arm processor, the expensive tablet PC will have an Intel processor. This means that if the cheaper version generates more demand, Microsoft will not bother to dump Intel. The current indication is that the expensive tablet PC may see demand from the developed economies, while the cheaper version may witness demand in the developing countries.

Stock

Percentage of Growth or Degrowth

Q1

Q2

Q3

YTD

INTC

16%

-5.2%

-15%

-11.4%

AMD

48.5%

-28.6%

-41.2%

-46.3%

S&P500

12.0%

-3.3%

5.8%

13.6%

DJIA

8.1%

-2.5%

4.3%

9.1%

Nasdaq

18.7%

-5.1%

6.2%

16.9%

While there is no doubt that Intel is a dominant player in the broad line semiconductor space, the company's stock performance has been poor after the stock had hit a 52-week high of $29.27 on May 3. The shares of the company performed creditably in the first quarter gaining 16 percent. However, the next two quarters witnessed a reversal of trend as the stock lost 5.2 percent and 15 percent respectively in the second and third quarters. For the year-to-date, the stock plummeted 11.4 percent. The worst part of it was that the stock dropped 11.2 percent until October 12 after Intel reduced its third quarter revenue forecast on September 7. Its rival, AMD also faced a similar fate. In comparison, the three indices posted significant gains for the year-to-date though the second quarter witnessed downside pressures.

(click to enlarge)

The stock chart indicates the stock's downside pressure from May onwards. The closing price of $21.48 is below the 50-day as well as 200-day moving averages of $23.30 and $24.86 respectively. The last ten days average volume is nearly 46 million compared to three month's average volume of nearly 41 million. This also indicates the kind of selling that the counter has been witnessing.

The industry's sluggishness will continue to prevent the stock from recording significant gains at least in the near term.

Source: Intel: Is The Investor Ready To Dump The Stock?