Microsoft (MSFT): FQ3 EPS of $0.72 beats by $0.04. Revenue of $20.49B misses by $71M. Shares +1.7% AH. (PR) [View news story]
Wow. MSFT is a machine. PC decline may not affect them as much as INTC. Businesses can still upgrade their operating system without upgrading their machines. Same goes for office. Businesses can upgrade Office or buy more licenses withouth upgrading their machines. Also server software, cloud products, and even the Entertainment and Devices segment look like they are performing pretty well. Mobile success is definitely not a certainty but the company certainly has a chance to be the #3 operating system behind iOS and Android.
The financial results are just incredible. Nearly $8.50 in net cash plus investments before a repatriation adjustment. That is just about 30% of the current market cap based on today's closing price. And the company is on pace to generate well over $3 of free cash flow per share, actually about $3.20 in FCF per share.
Even if you adjust for repatriation (difference between MSFT's effective rate and the US Federal Statutory rate) there is still about $7 in net cash plus investments. Using a stock price around $29 and assuming $3.20 in FCF for fiscal 2013, puts the current price to FCF at less than 7. Is it a stretch to say based on the results and the firm's financial position that the stock is deserving of a higher multiple?
Intel Valued As Though New Technologies Will Bust, But I Disagree [View article]
Thats a good point but the trend does not show huge growth. Data Center operating income has been flat to slightly down.
Below is commentary from the 2012 Annual Report:
"Operating income decreased by $27 million in 2012 compared to 2011 as $360 million of higher gross margin was more than offset by $387 million of higher operating expenses."
Now the firm says excess capacity charges.
Whatever the reasons, the big growth area of Intel has been flat since 2011. Most of the time I think company results are more important than what the executives say.
In your article you assume Intel will generate $13 billion of annual operating income from PCs and $8 billion from the Data Center Group by 2016.
Might that not be a stretch? YOY PC revenue was down 28%. And demand for PCs is plummeting. I am not saying PCs are dead. But consumer cannibalization and businesses upgrading much less frequently can have a huge impact on Intel's bottom line. PC demand is on pace to be at 2008 levels. Possibly the discontinuation of servicing Windows XP will help Intel in 2014 but so far it has not. No one really knows what the trough might be for PC sales. It might be 300 million per year. But it might be 250 million or 150 million.
The $13 billion you project is on pace to be $10 billion this year if you pro-rate this year based on last year. The first quarter seasonality reason does not apply. If Intel were able to generate the same operating income from the PC segment in Q2,3, and 4 of 2012 as they did in Q1, they would have generated almost $14 billion of operating income. They generated only $13 because demand for PCs fell sharply.
What concerns me about 2013's first quarter PC demand is that I thought some of the weak PC demand last year was due to the soft macro environment and weak IT spending in general. But now some IT spending has picked up and PC demand is even weaker. We are also only one year away from when Microsoft stops servicing XP and that hasn't helped. The "growth in emerging markets theory" also does not hold up. For example, web traffic in India on mobile devices has now surpassed web traffic on PCs.
The way things are going it would not surprise me to see PC operating income for Intel at $7 or $8 billion by 2016. Eventually it will stop falling. You are right about that. We just do not know when.
And why has Data Center operating income been flat to slightly down since 2011? You project $8 billion. And no doubt Intel will do well in this segment the next few years. But it looks like higher revenue is being offset by higher expenses. It is certainly realistic to think that Intel might only generate $5 billion from the Data Center segment in 2016 as they have since 2011. There are no signs of operating income increasing to $8 billion, only the words of company executives. The numbers show the expenses have been higher the past year plus.
All other Intel segments combined are on pace to lose a few billion dollars again. Perhaps this will turn around. But even if Intel gains 20% share as you project of the mobile and tablet app processor markets, the profitability would just be enough to offset the current losses from all the other segments.
But with Qualcomm and Samsung currently dominating the market, reaching 20% will not be easy.
This is why I can easily see earnings flat to slightly down over the next three years.
For earnings to be $3 or more you would need PC operating income to remain flat from Q1 2013 on, Data Center operating income to grow as you projected to $8 billion, and Intel to gain 50% share of the mobile and tablet markets. 50% would more than offset the current losses from the other segments (ex PC and Data Center).
Intel Valued As Though New Technologies Will Bust, But I Disagree [View article]
Correction from the comment above:
The Data Center segment, which is supposed to be the company's growth segment, is on pace to have operating income down slightly. 2012 was also slighty worse than 2011 in terms of operating income in dollars. This segment is on pace to generate slightly less than $5 billion of operating income this year, but lets go with $5 billion to be a little generous.
I meant worse instead of better in the initial comment.
Intel Valued As Though New Technologies Will Bust, But I Disagree [View article]
I haven't taken a position because this is very hard for me to call. I respect Tim and Ashraf's opinion and could definitely see the bull case in Intel, especially if they succeed with mobile.
However, Intel could be a value trap. PC operating income is plummeting. The segment is on pace to do about $10 billion of operating income in fiscal 2013. Down significantly from 2012.
The Data Center segment, which is supposed to be the company's growth segment, is on pace to have operating income down slightly. 2012 was also slighty better than 2011 in terms of operating income in dollars. This segment is on pace to generate slightly less than $5 billion of operating income this year, but lets go with $5 billion to be a little generous.
The remaining segments lost about $3.5 billion last year and are on pace to lose at least the same this year, but lets be generous and say the remaining segments only lose $3 billion.
Thats $12 billion of operating income. Assuming no other major issues and adjusting for a 25% tax rate gives us net income of $9 billion. Using 5 billion shares yields $1.80 in EPS down significantly from 2012 and 2012 was also down from 2011.
It is easy to see PC operating income declining to $7 billion over the next 3-4 years if the trend continues. And Data Center operating income looks like it is staying flat not growing.
In a previous article Ashraf suggested Intel could gain 20% of the mobile market and 20% of the tablet market by 2016. Forget about the revenue ARM gets for the design because that is negligible in the case of Intel, but lets assume he is correct. Even though this will be tough because Samsung and Qualcomm control approximately 3/4 of the app processor market. So in no way do I think it is a certainty that Intel gains 20% share in 3 years when they currently have next to nothing. But lets say they do.
I will assume revenue of $30 per phone and $20 per tablet. The extra for each phone b/c of the wireless modem as Ashraf pointed out. And $20 ASPs for each processor as Ashraf also pointed out which seems reasonable.
Using his numbers of 1.2 billion smartphones and lets say 400 million tablets would yield revenue of $7.2 billion from phones for Intel and and $1.6 billion from tablets. I will also be generous and use 33.3% operating margins. Thus Intel could see additional operating income under Ashraf's scenario of about $3 billion. I am rounding up total additional revenue to $9 billion.
Well this $3 billion simply negates the losses from segments other than the PC and Data Center groups. Possibly some of these segments do better going forward b/c of one-time items, etc...but who knows as they have yet to show any profitability.
So in 3 years we could have $7 billion of operating income from PCs, $5 billion from the Data Center Group, and the $3 billion in mobile and tablet income which is negated by the losses from the other segments. Using a share count of 4.8 billion, it is hard to see how Intel will be able to buyback more shares than this unless they take on even more debt, and adjusting for a 25% tax rate, yields EPS of $1.88. This would suggest a stock price stuck in the low to mid 20s, using a low double digit to low teens multiple, which is similar to some comps currently.
But what if Intel doesn't succeed with mobile and is still posting losses of $3 billion in segments other than the PC and the Data Center Group? Then operating income could decline to $9 billion. Adjusting for a 25% tax rate and using the same share count above 4.8 billion yields EPS of $1.40. Using the same multiple yields a stock price in the mid to high teens.
So is there huge downside. Not really. But the upside is certainly challenging. It would take massive success in mobile and tablet chips to really move the EPS over the next few years.
Intel (INTC): Q1 EPS of $0.40 misses by $0.01. Revenue of $12.58B (-2.5% Y/Y) misses by $30M. Expects Q2 revenue of $12.4B-$13.4B vs. $12.9B consensus. Expects "low single-digit" 2013 revenue growth, unchanged from prior guidance and compares with 0.7% consensus. Lowers 2013 capex guidance range by $1B to $11.5B-$12.5B. Shares +2.1% AH. CC at 5PM ET (webcast). (PR) [View news story]
Data Center Operating Income was down year-over-year:
For the Quarter Ended:
3/31/12 $1.135 billion 3/30/13 $1.079 billion
Revenue was up but margins are obviously lower so operating income was down. This is supposed to be the strongest segment. I do not want to make too much out of one quarter but the decline is worrisome, especially when the bulk of your operating income, derived from PCs, is absolutely cratering:
For the Quarter Ended:
3/31/12 $3.491 billion 3/30/13 $2.513 billion
Plus to make matters worse:
1) Huge Cap Ex requirement 2) A negligible amount of net cash compared to MSFT or AAPL or CSCO 3) All other segments are still posting sizeable losses
Intel's only option is to bet big on mobile. Will it work? Maybe. Maybe not.
Intel (INTC): Q1 EPS of $0.40 misses by $0.01. Revenue of $12.58B (-2.5% Y/Y) misses by $30M. Expects Q2 revenue of $12.4B-$13.4B vs. $12.9B consensus. Expects "low single-digit" 2013 revenue growth, unchanged from prior guidance and compares with 0.7% consensus. Lowers 2013 capex guidance range by $1B to $11.5B-$12.5B. Shares +2.1% AH. CC at 5PM ET (webcast). (PR) [View news story]
The trend looks terrible here. The margin decline and massive decline in PC and Data Center operating income, as well as the tremendous cap ex requirement is definitely worrisome. I would never short Intel because of their tremendous capability in terms of R & D and manufacturing, but I cannot see a reason to go long at this point. Those who are long are betting that Intel's competitive advantage in PCs and servers will carry over to mobile. It is certainly possible, but there are risks inherent in a long position. The combination of huge cap ex requirements and declining PC and now Data Center operating income might not bode well for future earnings.
More on General Motors' Q4: A weak performance in Europe and a rash of one-time accounting charges drove profits down from their levels of a year ago. A solid quarter in both South America and U.S. couldn't offset Europe. The automaker says 49K U.S. workers will receive profit-sharing checks of up to $6,750. GM -0.7% premarket. (PR) [View news story]
Geoffster,
Please get your info from another site other than zerohedge. There is clearly an agenda there. Inventory is at normal levels compared to historical standards and auto demand. The chart shown on that site of inventory build up is misleading because they start from the low of 2009 which was a time when auto demand was at multi-decade lows. If you don't think more cars are being sold now than 2009 you are living on another planet. And the company has a ridiculous amount of liquidity to handle debt, pension obligations, and possibly for buybacks. They also have number one share in China. The market finally seems to be recognizing this as the stock is up significantly since its lows. I think over the next few years there is much more upside potential with limited downside risk.
The money management business inspires a lively exchange at the Barron's Roundtable, with Brian Rogers' liking of Legg Mason (LM) as either a value or takeover play getting the thumbs up from Mario Gabelli, but a razzing from Bill Gross who says the stock-picking industry is in secular decline thanks to ETFs. Gabelli to Gross: "If you want to preach in favor of mindless investing, we don't have to stand by." [View news story]
I think both strategies work if applied well as long as the fees are not excessive. You could build a nice portfolio of diversified index funds for a very low cost or you could build a nicely diversified portfolio of low cost active managers who meet certain criteria, such as reasonable fees, low turnover, management who invest alongside shareholders, who communicate and treat shareholders well, who avoid investment banking conflicts, and are also paid on long-term performance versus asset growth. And preferably who carry a long-term, fundamental, value-oriented strategy. You could build a balanced portfolio of consistent active managers who meet the above criteria for as little as 50 or 60 basis points, which is not much more than an index portfolio.
The problem with ETFs is that they are often used as a trading vehicle as opposed to a low cost diversified long-term strategy. And certain strategies such as just holding the S & P 500 and ignoring foreign stocks, small cap stocks, and other areas, do not work if you buy in 2000 at the height of excessive valuation,especially since many index funds are market cap weighted and always have to buy more of expensive stocks as they move higher.
When did I ever say ignore 10Qs lol. I said measuring the annual payables period is a good way to identify red flags with retailers.
Over the last decade Amazon's annual payables period has increased from 66 days to 94 days. Looking short-term at quarterly numbers can show fluctuation. But you can't ignore the long-term trend. Amazon is taking longer to pay their bills. Thats just a fact. And the balance sheet is also much weaker. Cash is down to roughly $5 billion as of the end of last quarter and the company just announced a debt offering. You can say it is because they are expanding, but given the thin margin business they are in and the rapid increase in their shipping, fulfillment, and tech costs as a % of revenue, a smart investor has to be at least a little bit concerned about when the firm will begin to show meaningful profitability.
The chances for a fiscal cliff deal in the next 48 hours are "exceedingly good," says Senator Lindsey Graham, appearing on Fox News. "Hats off to the President, he won," Graham adds. "The President campaigned on raising rates and he's going to get a rate increase." [View news story]
Macro,
Thanks for the kind words. I get that you did not like Reagan. I do not share your dislike for him, just as I do not share the same dislike for Obama that many staunch Republicans have currently.
I was merely pointing out that Reagan's tax policies were not so extreme, just as Obama's are also not so extreme. Reagan cut taxes slightly for the majority of the population. Its true the rich benefited slightly more so than the poor but the poor continued to pay a much lower effective rate under Reagan. The tax rates maintained their progressivity. Regardless what you think of Reagan, the effective rates under him did not crush the poor and were not so unfair. They actually remained remarkably stable despite the hyperbole on both sides.
His deficits were brought about by defense spending. However, in his last year of office the deficit was reduced to 3% of GDP. Again, it is impossible to know for sure if the defense spending was worthwhile. But Reagan certainly inherited a mess and eventually brought down the deficit to a low single digit % of GDP, hardly an alarming number.
I will also point out that I do not think much of the deficit is Obama's doing and the deficit today does not even alarm me. The unfunded liabilites do. If Obama wants to ensure a great legacy he must get a handle on unfunded liabilties, especially Medicare, which will crush us in 10 years if we do not act soon.
The chances for a fiscal cliff deal in the next 48 hours are "exceedingly good," says Senator Lindsey Graham, appearing on Fox News. "Hats off to the President, he won," Graham adds. "The President campaigned on raising rates and he's going to get a rate increase." [View news story]
Macro Investor,
You are correct the national debt increased under Reagan. Many would point to the defense build up against the USSR as the main cause. Some would say it was worth it. Some would not. I personally think he had a positive effect on the fall of the Soviet Union and would give him more credit than most liberals do but less than many conservatives do as I also acknowledge there were major problems within the Soviet Union that were responsible for its demise.
Effective tax rates under Reagan actually stayed fairly constant for both the rich and the poor.
According to TaxPolicyCenter.org:
In Reagan's first year of office in 1981 the effective tax rate for lowest quintile was 7.9%. In his last full year in office in 1988 the rate was also 7.9%. The second lowest quintile saw a slight decrease from 14.7% in 1981 to 13.8% in 1988. The middle quintile saw a decent decrease in their effective rate under Reagan from 19.2% in 1981 to 17.8% in 1988. And the highest quintile and top 1% only saw slight decreases in their effective rates. The highest quintile saw a decline in their effective rate from 26.6% in 1981 to 25.4% in 1988. And the top 1% saw a decline from 30.4% in 1981 to 29% in 1988.
So we see from the numbers that effective tax rates under Reagan:
1) Saw modest declines for most of the population 2) Maintained significant progressivity as the lowest quintile paid an effective rate under 8% for much of the time and under 10% for his entire tenure while the wealthiest 1% paid an average effective rate during his tenure between 25-30%.
John Hussman compares Bernanke to a doctor who - facing a patient with a broken femur - vows to shove aspirin down the patient's throat until the bone heals. Eventually the bone may mend enough on its own for the patient to hobble around, but then he/she will need to be treated for liver failure. More troubling: We all know this, but countenance the Fed's actions in the name of "doing something." [View news story]
Hussman is a very bright guy and as always makes insightful points about fiscal policy and the macroeconomic environment, but as a money manager he should be more concerned with implementing an effective long-term investment strategy. His long-term numbers are absolutely dreadful. He should focus more on the fundamentals of individual companies and less on attempting to predict where the general market will go in the next 3-6 months.
John: take a lesson from funds like FPA Crescent.
Predicting the short-term direction of the global equity market is a fool's game.
A pair of right-to-work bills are officially passed in Michigan to set the stage for new employees at General Motors (GM +0.3%), Ford (F -0.1%), and Chrysler (FIATY.PK) to skip around union fees. While labor groups are still making quite a bit of noise on the issue, the Big Three have been deathly quiet. [View news story]
Dana,
The poverty information you are using is outdated. And there is no credible evidence that "right to work" laws create higher poverty rates.
According to an article by the Huffington Post referencing data from the U.S. Census Bureau, California now has the highest poverty rate.
In addition, the poverty rate in the South is no higher than the nation's average poverty rate. The West currently has the highest poverty rate as is presented in a link within the link below:
I am not saying "right to work" laws alleviate poverty. However, there is no evidence they create poverty.
Surely the housing bubble is partially responsible for high poverty rates in California and Florida. However, it does appear to me that border states with a large population of unskilled immigrants, are now the most impoverished. In addition to California and Florida, also Arizona, New Mexico, and Texas.
I am for "right to work" laws not because I feel they will alleviate poverty, as I have no idea if they will, but because I believe in the freedom to choose.
And I am by no means bashing immigrants, as they are vital to this nation's economic growth as they have been since our founding. Perhaps part of the solution is providing immigrants with job opportunities through non-union work, since many unions are against immigration growth. Instead of being so protective of their interests, unions would be better off advocating worker choice and opportunity for immigrants.
Please explain to me how we are being hammered by the Netherlands and Sweden? In what respect? Sure Sweden has a better standard of living than many countries in the world, but they are surely not considered an economic power. And have you checked unemployment in Sweden among younger people recently? It is sky high. If I had to live in another country I'd rather live in Hong Kong over Sweden due to Hong Kong's greater economic freedom ranking. However, I am sure some people would feel more comfortable in Sweden, living off a huge government safety net.
A pair of right-to-work bills are officially passed in Michigan to set the stage for new employees at General Motors (GM +0.3%), Ford (F -0.1%), and Chrysler (FIATY.PK) to skip around union fees. While labor groups are still making quite a bit of noise on the issue, the Big Three have been deathly quiet. [View news story]
I'm not sure a state's wealth has any correlation with the fact that it does not have "right to work" on its books. Many "right to work" states are in the South. And while those states might have lower per capita income and net worth than some northern states, the cost of living in the South is dramatically lower.
For example, California is an extremely wealthy state without a "right to work" law, yet the state's financial position is a disaster.
I'm usually for choice. Just as a woman should not be forced into a certain choice by the Government, shouldn't a worker also not be forced into a choice by the Government? Why should they be forced to pay union dues? There are many non-union workers who are perfectly happy. Perhaps "right to work" will force unions to use their revenue to benefit workers not just the Union's political agenda, such as TV ads during an election year.
Something also never mentioned is outsourcing. If we want less of it in the future, restrictions such as mandatory union membership, higher tax rates, and excess regulation are not the way to go. Corporations will continue to ship jobs abroad if their cost of doing business is excessively high in the USA.
Microsoft (MSFT): FQ3 EPS of $0.72 beats by $0.04. Revenue of $20.49B misses by $71M. Shares +1.7% AH. (PR) [View news story]
The financial results are just incredible. Nearly $8.50 in net cash plus investments before a repatriation adjustment. That is just about 30% of the current market cap based on today's closing price. And the company is on pace to generate well over $3 of free cash flow per share, actually about $3.20 in FCF per share.
Even if you adjust for repatriation (difference between MSFT's effective rate and the US Federal Statutory rate) there is still about $7 in net cash plus investments. Using a stock price around $29 and assuming $3.20 in FCF for fiscal 2013, puts the current price to FCF at less than 7. Is it a stretch to say based on the results and the firm's financial position that the stock is deserving of a higher multiple?
Intel Valued As Though New Technologies Will Bust, But I Disagree [View article]
Below is commentary from the 2012 Annual Report:
"Operating income decreased by $27 million in 2012 compared to 2011 as $360 million of higher gross margin was more than offset by $387 million of higher operating expenses."
Now the firm says excess capacity charges.
Whatever the reasons, the big growth area of Intel has been flat since 2011. Most of the time I think company results are more important than what the executives say.
In your article you assume Intel will generate $13 billion of annual operating income from PCs and $8 billion from the Data Center Group by 2016.
Might that not be a stretch? YOY PC revenue was down 28%. And demand for PCs is plummeting. I am not saying PCs are dead. But consumer cannibalization and businesses upgrading much less frequently can have a huge impact on Intel's bottom line. PC demand is on pace to be at 2008 levels. Possibly the discontinuation of servicing Windows XP will help Intel in 2014 but so far it has not. No one really knows what the trough might be for PC sales. It might be 300 million per year. But it might be 250 million or 150 million.
The $13 billion you project is on pace to be $10 billion this year if you pro-rate this year based on last year. The first quarter seasonality reason does not apply. If Intel were able to generate the same operating income from the PC segment in Q2,3, and 4 of 2012 as they did in Q1, they would have generated almost $14 billion of operating income. They generated only $13 because demand for PCs fell sharply.
What concerns me about 2013's first quarter PC demand is that I thought some of the weak PC demand last year was due to the soft macro environment and weak IT spending in general. But now some IT spending has picked up and PC demand is even weaker. We are also only one year away from when Microsoft stops servicing XP and that hasn't helped. The "growth in emerging markets theory" also does not hold up. For example, web traffic in India on mobile devices has now surpassed web traffic on PCs.
The way things are going it would not surprise me to see PC operating income for Intel at $7 or $8 billion by 2016. Eventually it will stop falling. You are right about that. We just do not know when.
And why has Data Center operating income been flat to slightly down since 2011? You project $8 billion. And no doubt Intel will do well in this segment the next few years. But it looks like higher revenue is being offset by higher expenses. It is certainly realistic to think that Intel might only generate $5 billion from the Data Center segment in 2016 as they have since 2011. There are no signs of operating income increasing to $8 billion, only the words of company executives. The numbers show the expenses have been higher the past year plus.
All other Intel segments combined are on pace to lose a few billion dollars again. Perhaps this will turn around. But even if Intel gains 20% share as you project of the mobile and tablet app processor markets, the profitability would just be enough to offset the current losses from all the other segments.
But with Qualcomm and Samsung currently dominating the market, reaching 20% will not be easy.
This is why I can easily see earnings flat to slightly down over the next three years.
For earnings to be $3 or more you would need PC operating income to remain flat from Q1 2013 on, Data Center operating income to grow as you projected to $8 billion, and Intel to gain 50% share of the mobile and tablet markets. 50% would more than offset the current losses from the other segments (ex PC and Data Center).
Intel Valued As Though New Technologies Will Bust, But I Disagree [View article]
The Data Center segment, which is supposed to be the company's growth segment, is on pace to have operating income down slightly. 2012 was also slighty worse than 2011 in terms of operating income in dollars. This segment is on pace to generate slightly less than $5 billion of operating income this year, but lets go with $5 billion to be a little generous.
I meant worse instead of better in the initial comment.
Intel Valued As Though New Technologies Will Bust, But I Disagree [View article]
However, Intel could be a value trap. PC operating income is plummeting. The segment is on pace to do about $10 billion of operating income in fiscal 2013. Down significantly from 2012.
The Data Center segment, which is supposed to be the company's growth segment, is on pace to have operating income down slightly. 2012 was also slighty better than 2011 in terms of operating income in dollars. This segment is on pace to generate slightly less than $5 billion of operating income this year, but lets go with $5 billion to be a little generous.
The remaining segments lost about $3.5 billion last year and are on pace to lose at least the same this year, but lets be generous and say the remaining segments only lose $3 billion.
Thats $12 billion of operating income. Assuming no other major issues and adjusting for a 25% tax rate gives us net income of $9 billion. Using 5 billion shares yields $1.80 in EPS down significantly from 2012 and 2012 was also down from 2011.
It is easy to see PC operating income declining to $7 billion over the next 3-4 years if the trend continues. And Data Center operating income looks like it is staying flat not growing.
In a previous article Ashraf suggested Intel could gain 20% of the mobile market and 20% of the tablet market by 2016. Forget about the revenue ARM gets for the design because that is negligible in the case of Intel, but lets assume he is correct. Even though this will be tough because Samsung and Qualcomm control approximately 3/4 of the app processor market. So in no way do I think it is a certainty that Intel gains 20% share in 3 years when they currently have next to nothing. But lets say they do.
I will assume revenue of $30 per phone and $20 per tablet. The extra for each phone b/c of the wireless modem as Ashraf pointed out. And $20 ASPs for each processor as Ashraf also pointed out which seems reasonable.
Using his numbers of 1.2 billion smartphones and lets say 400 million tablets would yield revenue of $7.2 billion from phones for Intel and and $1.6 billion from tablets. I will also be generous and use 33.3% operating margins. Thus Intel could see additional operating income under Ashraf's scenario of about $3 billion. I am rounding up total additional revenue to $9 billion.
Well this $3 billion simply negates the losses from segments other than the PC and Data Center groups. Possibly some of these segments do better going forward b/c of one-time items, etc...but who knows as they have yet to show any profitability.
So in 3 years we could have $7 billion of operating income from PCs, $5 billion from the Data Center Group, and the $3 billion in mobile and tablet income which is negated by the losses from the other segments. Using a share count of 4.8 billion, it is hard to see how Intel will be able to buyback more shares than this unless they take on even more debt, and adjusting for a 25% tax rate, yields EPS of $1.88. This would suggest a stock price stuck in the low to mid 20s, using a low double digit to low teens multiple, which is similar to some comps currently.
But what if Intel doesn't succeed with mobile and is still posting losses of $3 billion in segments other than the PC and the Data Center Group? Then operating income could decline to $9 billion. Adjusting for a 25% tax rate and using the same share count above 4.8 billion yields EPS of $1.40. Using the same multiple yields a stock price in the mid to high teens.
So is there huge downside. Not really. But the upside is certainly challenging. It would take massive success in mobile and tablet chips to really move the EPS over the next few years.
I appreciate the discussion.
Intel (INTC): Q1 EPS of $0.40 misses by $0.01. Revenue of $12.58B (-2.5% Y/Y) misses by $30M. Expects Q2 revenue of $12.4B-$13.4B vs. $12.9B consensus. Expects "low single-digit" 2013 revenue growth, unchanged from prior guidance and compares with 0.7% consensus. Lowers 2013 capex guidance range by $1B to $11.5B-$12.5B. Shares +2.1% AH. CC at 5PM ET (webcast). (PR) [View news story]
For the Quarter Ended:
3/31/12 $1.135 billion
3/30/13 $1.079 billion
Revenue was up but margins are obviously lower so operating income was down. This is supposed to be the strongest segment. I do not want to make too much out of one quarter but the decline is worrisome, especially when the bulk of your operating income, derived from PCs, is absolutely cratering:
For the Quarter Ended:
3/31/12 $3.491 billion
3/30/13 $2.513 billion
Plus to make matters worse:
1) Huge Cap Ex requirement
2) A negligible amount of net cash compared to MSFT or AAPL or CSCO
3) All other segments are still posting sizeable losses
Intel's only option is to bet big on mobile. Will it work? Maybe. Maybe not.
Intel (INTC): Q1 EPS of $0.40 misses by $0.01. Revenue of $12.58B (-2.5% Y/Y) misses by $30M. Expects Q2 revenue of $12.4B-$13.4B vs. $12.9B consensus. Expects "low single-digit" 2013 revenue growth, unchanged from prior guidance and compares with 0.7% consensus. Lowers 2013 capex guidance range by $1B to $11.5B-$12.5B. Shares +2.1% AH. CC at 5PM ET (webcast). (PR) [View news story]
AIG is downgraded to Hold at Sterne Agee, which says the stock is now fairly valued. Shares are giving up some gains following the big earnings beat, but still +2.7%. [View news story]
Do people really pay for this advice?
More on General Motors' Q4: A weak performance in Europe and a rash of one-time accounting charges drove profits down from their levels of a year ago. A solid quarter in both South America and U.S. couldn't offset Europe. The automaker says 49K U.S. workers will receive profit-sharing checks of up to $6,750. GM -0.7% premarket. (PR) [View news story]
Please get your info from another site other than zerohedge. There is clearly an agenda there. Inventory is at normal levels compared to historical standards and auto demand. The chart shown on that site of inventory build up is misleading because they start from the low of 2009 which was a time when auto demand was at multi-decade lows. If you don't think more cars are being sold now than 2009 you are living on another planet. And the company has a ridiculous amount of liquidity to handle debt, pension obligations, and possibly for buybacks. They also have number one share in China. The market finally seems to be recognizing this as the stock is up significantly since its lows. I think over the next few years there is much more upside potential with limited downside risk.
The money management business inspires a lively exchange at the Barron's Roundtable, with Brian Rogers' liking of Legg Mason (LM) as either a value or takeover play getting the thumbs up from Mario Gabelli, but a razzing from Bill Gross who says the stock-picking industry is in secular decline thanks to ETFs. Gabelli to Gross: "If you want to preach in favor of mindless investing, we don't have to stand by." [View news story]
The problem with ETFs is that they are often used as a trading vehicle as opposed to a low cost diversified long-term strategy. And certain strategies such as just holding the S & P 500 and ignoring foreign stocks, small cap stocks, and other areas, do not work if you buy in 2000 at the height of excessive valuation,especially since many index funds are market cap weighted and always have to buy more of expensive stocks as they move higher.
Amazon: Time To Sell The Bubble [View article]
Over the last decade Amazon's annual payables period has increased from 66 days to 94 days. Looking short-term at quarterly numbers can show fluctuation. But you can't ignore the long-term trend. Amazon is taking longer to pay their bills. Thats just a fact. And the balance sheet is also much weaker. Cash is down to roughly $5 billion as of the end of last quarter and the company just announced a debt offering. You can say it is because they are expanding, but given the thin margin business they are in and the rapid increase in their shipping, fulfillment, and tech costs as a % of revenue, a smart investor has to be at least a little bit concerned about when the firm will begin to show meaningful profitability.
The chances for a fiscal cliff deal in the next 48 hours are "exceedingly good," says Senator Lindsey Graham, appearing on Fox News. "Hats off to the President, he won," Graham adds. "The President campaigned on raising rates and he's going to get a rate increase." [View news story]
Thanks for the kind words. I get that you did not like Reagan. I do not share your dislike for him, just as I do not share the same dislike for Obama that many staunch Republicans have currently.
I was merely pointing out that Reagan's tax policies were not so extreme, just as Obama's are also not so extreme. Reagan cut taxes slightly for the majority of the population. Its true the rich benefited slightly more so than the poor but the poor continued to pay a much lower effective rate under Reagan. The tax rates maintained their progressivity. Regardless what you think of Reagan, the effective rates under him did not crush the poor and were not so unfair. They actually remained remarkably stable despite the hyperbole on both sides.
His deficits were brought about by defense spending. However, in his last year of office the deficit was reduced to 3% of GDP. Again, it is impossible to know for sure if the defense spending was worthwhile. But Reagan certainly inherited a mess and eventually brought down the deficit to a low single digit % of GDP, hardly an alarming number.
I will also point out that I do not think much of the deficit is Obama's doing and the deficit today does not even alarm me. The unfunded liabilites do. If Obama wants to ensure a great legacy he must get a handle on unfunded liabilties, especially Medicare, which will crush us in 10 years if we do not act soon.
The chances for a fiscal cliff deal in the next 48 hours are "exceedingly good," says Senator Lindsey Graham, appearing on Fox News. "Hats off to the President, he won," Graham adds. "The President campaigned on raising rates and he's going to get a rate increase." [View news story]
You are correct the national debt increased under Reagan. Many would point to the defense build up against the USSR as the main cause. Some would say it was worth it. Some would not. I personally think he had a positive effect on the fall of the Soviet Union and would give him more credit than most liberals do but less than many conservatives do as I also acknowledge there were major problems within the Soviet Union that were responsible for its demise.
Effective tax rates under Reagan actually stayed fairly constant for both the rich and the poor.
According to TaxPolicyCenter.org:
In Reagan's first year of office in 1981 the effective tax rate for lowest quintile was 7.9%. In his last full year in office in 1988 the rate was also 7.9%. The second lowest quintile saw a slight decrease from 14.7% in 1981 to 13.8% in 1988. The middle quintile saw a decent decrease in their effective rate under Reagan from 19.2% in 1981 to 17.8% in 1988. And the highest quintile and top 1% only saw slight decreases in their effective rates. The highest quintile saw a decline in their effective rate from 26.6% in 1981 to 25.4% in 1988. And the top 1% saw a decline from 30.4% in 1981 to 29% in 1988.
So we see from the numbers that effective tax rates under Reagan:
1) Saw modest declines for most of the population
2) Maintained significant progressivity as the lowest quintile paid an effective rate under 8% for much of the time and under 10% for his entire tenure while the wealthiest 1% paid an average effective rate during his tenure between 25-30%.
John Hussman compares Bernanke to a doctor who - facing a patient with a broken femur - vows to shove aspirin down the patient's throat until the bone heals. Eventually the bone may mend enough on its own for the patient to hobble around, but then he/she will need to be treated for liver failure. More troubling: We all know this, but countenance the Fed's actions in the name of "doing something." [View news story]
John: take a lesson from funds like FPA Crescent.
Predicting the short-term direction of the global equity market is a fool's game.
A pair of right-to-work bills are officially passed in Michigan to set the stage for new employees at General Motors (GM +0.3%), Ford (F -0.1%), and Chrysler (FIATY.PK) to skip around union fees. While labor groups are still making quite a bit of noise on the issue, the Big Three have been deathly quiet. [View news story]
The poverty information you are using is outdated. And there is no credible evidence that "right to work" laws create higher poverty rates.
According to an article by the Huffington Post referencing data from the U.S. Census Bureau, California now has the highest poverty rate.
In addition, the poverty rate in the South is no higher than the nation's average poverty rate. The West currently has the highest poverty rate as is presented in a link within the link below:
http://huff.to/QUzINa
I am not saying "right to work" laws alleviate poverty. However, there is no evidence they create poverty.
Surely the housing bubble is partially responsible for high poverty rates in California and Florida. However, it does appear to me that border states with a large population of unskilled immigrants, are now the most impoverished. In addition to California and Florida, also Arizona, New Mexico, and Texas.
I am for "right to work" laws not because I feel they will alleviate poverty, as I have no idea if they will, but because I believe in the freedom to choose.
And I am by no means bashing immigrants, as they are vital to this nation's economic growth as they have been since our founding. Perhaps part of the solution is providing immigrants with job opportunities through non-union work, since many unions are against immigration growth. Instead of being so protective of their interests, unions would be better off advocating worker choice and opportunity for immigrants.
Please explain to me how we are being hammered by the Netherlands and Sweden? In what respect? Sure Sweden has a better standard of living than many countries in the world, but they are surely not considered an economic power. And have you checked unemployment in Sweden among younger people recently? It is sky high. If I had to live in another country I'd rather live in Hong Kong over Sweden due to Hong Kong's greater economic freedom ranking. However, I am sure some people would feel more comfortable in Sweden, living off a huge government safety net.
A pair of right-to-work bills are officially passed in Michigan to set the stage for new employees at General Motors (GM +0.3%), Ford (F -0.1%), and Chrysler (FIATY.PK) to skip around union fees. While labor groups are still making quite a bit of noise on the issue, the Big Three have been deathly quiet. [View news story]
For example, California is an extremely wealthy state without a "right to work" law, yet the state's financial position is a disaster.
I'm usually for choice. Just as a woman should not be forced into a certain choice by the Government, shouldn't a worker also not be forced into a choice by the Government? Why should they be forced to pay union dues? There are many non-union workers who are perfectly happy. Perhaps "right to work" will force unions to use their revenue to benefit workers not just the Union's political agenda, such as TV ads during an election year.
Something also never mentioned is outsourcing. If we want less of it in the future, restrictions such as mandatory union membership, higher tax rates, and excess regulation are not the way to go. Corporations will continue to ship jobs abroad if their cost of doing business is excessively high in the USA.