Wednesday, July 15, 2009

Intel trading up on big earnings beat (INTC)

AlphaNinja - Last night I noted that Intel (INTC) reported a blowout quarter. Some more details and the street's reaction. The stock is at 17.93, up 6.5% today. After hours last night the shares traded around 18.30. As is usually the case with Intel, gross margins tell the story -->>and they came in well ahead of estimates.

Gross margin came in at 51% versus expectations of "mid-40's." Guidance for the next quarter's gross margin is 51-55%, versus about 50% consensus. The company excludes (for comparison purposes) the $1.4billion European Commission Fine.

Intel's positive guidance does not factor in much upside from back-to-school or a Windows 7 "refresh," so upside could remain there.

From the conference call:

Mark Lipacis - Morgan Stanley
As you look into Q3, could you give us a sense of how you are thinking about how your guidance is impacted by back-to-school spending or any kind of a corporate refresh? Thank you.

Paul S. Otellini
Well, there’s certainly some -- given the consumer notebooks and consumer sales have been the -- kind of the strongest element of this recessionary period, we’re expecting some of that to continue in some back-to-school but we are not out there thinking that there’s a recovery to prior levels in the aggregate.
In terms of enterprise, I actually -- we are not planning for a big refresh this year. I think that there’s likely to be a refresh coming, when you look at the ageing of products that are out there, desktops in the corporate environment are about four years old, notebooks three-and-a-half years old, servers about three years old. At some point, those need to be refreshed. I think there is an opportunity for that to happen around Win 7 and our new technologies, which work pretty well together in terms of new stability and security features.
But we’re not counting on that happening in large measures in 2009.

The reaction from analysts is generally positive but not overly so, with some suggesting profits be taken today.

Credit Suisse notes that the beat was largely due to replenishing extremely low inventories at channel clients. Takes their target price up to $22.

Jeffries notes that while enterprise (corporate) sales remain weak, consumer orders were above expectations. Takes 2010 earnings estimates to 1.01 from 68 cents, yet has a target price of $12, 33% below current levels. They see overall slowing in the PC market, a shift to lower-margin products, and weak prospects in new markets (smartphones) as reasons for their outlook.

Collins Stewart notes that pricing was weak due to more consumer and less enterprise revenue. They worry that much of the upside was due to restocking at clients, as opposed to actual end-user demand. Target increased to $20.

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