Analyst wonders why Intel is not cutting jobs

FBR Capital Markets lowered its estimates for Intel on weak PC demand and the overall financial situation, asking why Intel refutes predictions of significantly factory headcount reductions, given its downward guidance revision and industry expectations for lower component demand.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 12/18/2008

Estimates for Intel Corp are once again being cut by FBR Capital Markets, which continues to project a large headcount reduction is in the MPU leader's future.

Craig Berger, an analyst at the semiconductor market analysis firm, pointed squarely at the notebook market in an FBR report on Intel today.

According to supply chain checks made by FBR, November desktop and notebook builds were worse than expected due to weak consumer demand and OEM customers cutting orders to avoid an inventory build. "Recent checks from Asia show November desktop builds were 19 points below expectations due to weak channel demand in the EU, US, and Asia-Pacific, despite heavy promotional activity," Berger said. "In-house component inventory may be cut further given the weak Q1 outlook."

FBR today estimated Q4 notebook unit shipments will decline 3% sequentially, below the firm's month-ago forecast of 5% growth. Q4 desktop shipments are expected to decline 27% sequentially, below FBR's month-ago forecast of a 15% decline. Overall, FBR forecasted Q4 PC shipments to decline 15% sequentially, below its month-ago forecast of a 5% decline.

In Q1, FBR said it expects PC build to decline 21% sequentially. Q1 notebook units are expected to decline 23% sequentially, while desktop shipments are expected to decline 18% sequentially. Overall, FBR forecasted Q1 PC shipments will decline 21% sequentially, worse than historical seasonality and most Intel financial estimates.

In November, Intel lowered its Q4 guidance. The revision called for revenues to fall 9% to 15% sequentially on Q3's $10.2 billion in sales to $9 billion, plus or minus $300 million, lower than the MPU maker's original expectation calling for growth down 1% to up 7% sequentially and revenue between $10.1 billion and $10.9 billion.

"We respect Intel's stellar execution and strong product roadmap," Berger maintained. "That said, we remain on the sidelines given: We fear that weakening PC demand could drive additional consensus revenue estimate reductions; major restructuring actions have already been completed, leaving few incremental opportunities; Intel's new Atom processors could drive customers to mix down to lower ASP parts, negating any unit demand goodness; and we believe more attractive upside can be found elsewhere."

Earlier this month, FBR had predicted large-scale job cuts would be coming to Intel. Berger said FBR has spoken with Intel since then and that Intel is refuting the analyst's prediction.

When reached by Electronic News, Intel would not comment on the report. A spokesman estimated the company's headcount is currently around 83,000, down by about 20,000 from its last major workforce reduction begun in 2006.*

"However, with 2009 revenues expected to fall by almost 15% versus 2007 and 2008 levels, we wonder why Intel does not need to reduce factory headcount by 15%," Berger said in today's report. "Perhaps Intel should consider another round of headcount reductions to bolster financial performance and readjust to meaningfully lower demand levels."

On that, FBR has cut its 2009 EPS (earnings per share) estimate from $0.85 to $0.70 and price target on Intel's stock, INTC, from $15.50 to $13. "We maintain our 'Market Perform' rating on INTC, but note that other stocks are trading at more deeply discounted levels and likely offer more upside return in a stable or improving tape," Berger said.

INTC was trading at $14.69 as of 12:10pm this afternoon, down nearly 3.7% from its Wednesday close of $15.26.

*Editor's note: This story was updated at 2:45 pm eastern to include Intel's headcount data.