Intel In-Line with Estimates, Firm Says

Online staff -- Electronic News, 10/17/2005

Anticipating financial results from chip giant Intel Corp. due Tuesday, Portland, Ore.-based investment banking firm Pacific Crest Securities today reported it expects Intel’s revenue and guidance to be in-line with estimates.

“We expect Intel to report Q3 revenue of $9.9 billion, up 7 percent quarter-over-quarter, gross margin of 60.5 percent and earnings per share (EPS) of 33 cents,” the report said, which was authored by semiconductor analysts Michael McConnell and Li Tang.

Chipset shortages are likely to cap any upside in desktop CPU units, the firm believes. At the same time, notebook demand has remained healthy, although chipset shortages have been widespread throughout Q3; causing a limited supply situation of Intel’s 0.13-micron, 915 core logic chipsets. Dell’s decision to deemphasize the low end of the PC market will likely constrain unit growth in the second half of 2005.

Intel continues to experience a difficult pricing environment for Xeon, and Pacific Crest believes the pricing environment for Intel’s x86 Xeon server CPUs is still difficult as competition from AMD remains intense. Intel’s server segment contributes gross margin of 85 to 90 percent, the firm noted.

Q4 guidance is expected to meet consensus estimates.

“We expect Intel to guide Q4 revenue to a range of $10.3 billion to $10.9 billion and gross margin to a range of 61 to 62 percent, yielding EPS of 42 cents using the midpoints of the ranges,” McConnell said.

Further, near-term concerns are priced into the stock and the firm has adjusted its model slightly to reflect expectations. With Intel stock trading at 14x the 2006 consensus earnings estimate, versus a range of 17x to 36x over the last three years, the risk/reward profile is attractive, although near-term catalysts are lacking, Pacific Crest said.

Finally, “strong demand from emerging markets, a continued market transition to higher margin notebook processors, and reduced 65nm start-up costs in the back half of the year position Intel to meet consensus expectations for 59 percent gross margin in 2005,” McConnell continued.

“In the longer term, stronger sales of mobile and server processors will likely offset slowing secular growth in desktop processors, while new ventures in wireline networking and wireless devices should provide supplemental revenue streams to enhance Intel’s PC foundation,” he concluded.