INTL Earnings Preview

Tuesday, January 15, 2008

INTC Intel Earnings Preview (22.87 -0.21)

Intel (INTC) is set to report Q4 results after the close tonight with a conference call following at 5:30 ET. Current First Call consensus estimates are for EPS of $0.40 on revs of $10.84 bln. In its Q3 earnings report, the company issued upside guidance for Q4, seeing revs of $10.5-$11.1 bln and gross margins of 57%, plus or minus a couple points. Co reaffirmed this guidance on 11/28 at Credit Suisse Tech Conference... Recent Earnings History: 3Q07 (10/16): INTC beats EPS consensus by $0.03, beats on revs, and slightly misses on gross margins. Co guided Q4 revs above consensus. The stock gapped up at the open the following day, closing higher by ~5%; 2Q07 (7/17): INTC reported an in-line EPS, beat on revs, and missed on gross margin expectations. Co guided Q3 revs in-line. The stock gapped down at the open the following day, closing lower by ~5%; 1Q07 (4/17): INTC reports EPS in-line, misses on revs, and beats gross margin expectations. Co guides Q2 revs below consensus. The stock traded marginally higher the following day; 4Q06 (1/16/07): INTC beat EPS estimates by a penny, beats on revs, and issued in-line rev guidance for 1Q07. The stock gapped down the following day, closing lower by ~6%... Analyst Expectations: Analysts are generally expecting INTC to report an in-line quarter, with possible cautious 1Q08 revenue guidance, given broader weakness in the US economy. Additionally, some analysts mention that there are some indications of weakening margins, including sluggish monthly sales from Taiwan PC chain, as well as possible rising inventories in China... Areas of Focus on the Call: 1) Margin Guidance: The company historically issues gross margin guidance for the upcoming quarter. Current estimates are at 57.2%. While higher ASP's and lower unit costs served to benefit gross margins in 2H07, these two factors may erode in the seasonally weak 1H08; 2) U.S. Macro Outlook: With fears about a recession, market participants will be focusing on mgmt's expectations for domestic PC growth and demand. A low double-digit growth rate, ~11%, would be viewed positively. Expectations are low, so a strong outlook and commentary would likely move shares, and possibly the markets in general, higher; 3) Competitive Positioning: Intel has been in a solid position against its main competitor Advanced Micro Devices (AMD) throughout the year, who has missed key product launch dates (Barcelona) and has been severely hurt in the pricing war. With INTC's next-in-line 45nm products, Penryn and Nehalem, the company may actually strengthen its competitive advantage; 4) Inventory: There appears to be some concern regarding modest motherboard inventory builds, and isolated instances of excess inventory in CPU's and chipsets. Of significance will be whether inventory levels are higher than mgmt expected, and whether this will cause a sub-seasonal 1H08; 5) ASP's: As a key driver for gross margins, market participants will be listening for commentary regarding the outlook for ASP's and PC demand... Current Consensus: Q4 EPS $0.40, revs $10.84 bln; 1Q08 EPS $0.34, revs $9.97 bln; 2Q08 EPS $0.33, revs $9.77 bln; FY07 EPS $1.21, revs $38.46 bln; FY08 EPS $1.51, revs $41.77 bln... Secondary Plays: AMD, TXN, BRCM, QCOM, DELL... Technical Levels of Interest: Click here for INTC chart. (Length of the horizontal lines corresponds with the strength of the level.) (PVIEW)