April 18, 2000 2:19 PM
Spirits Run High Ahead of Intel's Earnings Report
By Monica Rivituso
INTEL CORP
INTC 127.13
4.13 3.36%
INTL BUSINESS MACHINES
IBM 113.56
1.69 1.51%
DJIA
10672.79 90.28
Nasdaq
3726.13 186.97
Rus. 2000
479.85 20.59
4/18/2000 3:15PM ET
TECHNOLOGY STOCKS GAVE investors an encore Tuesday. After the Nasdaq's 217-point rally on Monday, the index surged another 200 points by lunchtime, marking the second day of gains after last week's grisly rout. Tonight, a couple of tech heavyweights ? Intel (INTC) and IBM (IBM) ? will report first-quarter results after the bell. Whether the applause continues tomorrow may depend on what these bellwethers say.
Wall Street is clearly expecting big things from the chip giant. Intel shares surged nearly 6% by lunchtime in anticipation of the report. It helped that Morgan Stanley Dean Witter's Mark Edelstone upgraded the stock this morning.
The analyst hiked his rating to Strong Buy from Outperform, based on the accelerated growth Intel should see in the second half of this year. As the biggest chipmaker in the world, Intel's report is key in many respects ? it provides a good barometer for the PC, semiconductor and chip-equipment industry.
With expectations running so high, however, Intel had better deliver. The First Call/Thomson Financial consensus estimate is calling for earnings of 69 cents a share, but Ashok Kumar, an analyst at U.S. Bancorp Piper Jaffray is sticking with his Street-high forecast for 75 cents a share. Intel's gross margins should expand, and Kumar is predicting a 270-basis point sequential jump to 64%. Intel recently transitioned its low-end Celeron processor to 0.18-micron manufacturing technology, which reduced costs by 25%.
Kumar is a little leery of the short-term outlook, however. While gross margins will expand, he says, unit sales will likely be down "modestly" from last quarter. They'll still be about 20% higher than this time last year, but he says they're slipping due to seasonal weakness and should post a 3% sequential decline by next quarter. Most analysts aren't predicting that much weakness, Kumar says, which is why he's expecting management guide expectations lower on the conference call. And that could be damaging for a day or so.
Kumar is hardly an Intel bear, however. He agrees with Edelstone that the third and fourth quarter will be where things should get interesting for the chip gaint. While Kumar says average selling prices should continue to trend lower for the rest of the year, unit sales should pick up in the second half. He thinks Intel should see 20% unit growth for the year and 16% revenue growth to $34 billion.
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