SSB is taking their turn with a big club
Intel's P/S is 6.8x > 1996 low of 2.8. => price of ~$15
someone is really "optimistic" around there
INTC: Q1 Outlook Downbeat; Reducing Estimates
1/11/1 14:29 (New York)
SALOMON SMITH BARNEY
Intel Corporation (INTC)
INTC: Q1 Outlook Downbeat; Reducing Estimates 2M (Outperform, Medium Risk)
Mkt Cap: $225,943.5 mil.
January 11, 2001 SUMMARY
* We expect Q4 to come in line with expectations; we
SEMICONDUCTORS are forecasting $0.38 per share in earning on $8.73
Jonathan Joseph billion in revenues. We do believe it possible,
415-955-4998 however, that Intel has "borrowed from Peter to pay
jonathan.joseph@ssmb.com Paul", and may show weaker than expected results for
Q1.
* Given the inputs from motherboard, pc's and
chipset suppliers, we believe Intel's processor unit
shipments could be down 10 to 15% from Q4 to Q1.
* Given the lower outlook, We are reducing our Q1
revenue estimate from $8.73 billion (flat with Q4)
to $7.86 billion (down 10%), 2001 is reduced from
$36.86 billion (up 9%) to $34.56 billion (up 2%).
* We are also lowering our Q1 EPS estimate from
$0.35 to $0.30 (versus $0.36); 2001 is reduced from
$1.42 to $1.25.
* No change to our rating or target price.
FUNDAMENTALS
P/E (12/00E) 19.4x
P/E (12/01E) 25.8x
TEV/EBITDA (12/00E) NA
TEV/EBITDA (12/01E) NA
Book Value/Share (12/00E) $5.38
Price/Book Value 6.0x
Dividend/Yield (12/00E) $0.06/0.2%
Revenue (12/00E) $33,782.0 mil.
Proj. Long-Term EPS Growth 25%
ROE (12/00E) 31.4%
Long-Term Debt to Capital(a) 1.6%
INTC is in the S&P 500(R) Index.
(a) Data as of most recent quarter
SHARE DATA . RECOMMENDATION
Price (1/9/01) $32.25 Current Rating 2M
52-Week Range $74.88-$30.06 Prior Rating 2M
Shares Outstanding(a) 7,006.0 mil. Current Target Price $45.00
Convertible No Previous Target Price $45.00
EARNINGS PER SHARE
FY ends 1Q 2Q 3Q 4Q Full Year
12/99A Actual $0.29A $0.26A $0.28A $0.35A $1.16A
12/00E Current $0.36A $0.50A $0.41A $0.38E $1.66E
Previous $0.36E $0.50E $0.41E $0.38E $1.66E
12/01E Current $0.30E $0.31E $0.31E $0.31E $1.25E
Previous $0.35E $0.35E $0.36E $0.36E $1.42E
12/02E Current NA NA NA NA $1.40E
Previous NA NA NA NA NA
First Call Consensus EPS: 12/00E $1.64; 12/01E $1.50; 12/02E $1.97
OPINION
Demand in the personal computer market appears to be approaching its weakest
condition in nearly 15 years. Given our new outlook on Q1, it seems quite
likely the whole microprocessor market will be flat in 2001 compared to 2000,
the worst showing since 1986, when the market actually declined. Not a good
backdrop for the overall personal computer component market as a whole.
Though we expect Intel to hit the recent guidance for Q4, which was for
sequentially flat revenues, plus or minus a percentage point. Our outlook of
62% gross margins for Q4 is at the low end of guidance, which calls for flat
margins, plus or minus. Our concern is no longer Q4, however, but Q1 and the
outlook for 2001.
The inputs we continue to pick up from Taiwanese motherboard makers, chipset
makers, and memory suppliers, are monolithically negative. Given those inputs,
it seems to us quite likely Intel could record a 10%-15% sequential decline in
revenues in Q1. The microprocessor business is a fixed cost business, and
Intel has just increased capital spending by 91% in 2000. Lower than expected
revenues usually has a negative impact on gross margins, and we are now
forecasting a 350bp decline from our Q4 estimate of 62% to our new Q1 estimate
of 58.5%. We now forecast gross margins will decline by a little more than
500bp from 62.4% (estimated) in 2000 to 57.2% in 2001.
On a unit basis, we expect the company to come in line, or slightly exceed our
forecast of flat Q4 units of about 32.5 million. Units, however, may well fall
sharply in Q1 and we are now expecting at least a 10% decline to 29.6 million,
down from our earlier estimate of about 32.5 million. We also reduced our 2001
unit forecast from 143.6 million (up 10%) to 130.9 million (up 0.3%).
Given the current relative strength in the higher-priced mobile market, we are
figuring Q4 prices will likely be flat from $182 in Q3, and flat again in Q1.
We do, however, have prices falling 3% this year from $183 to $178. Obviously,
excess capacity on the market, exacerbated by higher output at both Intel and
Advanced Micro (AMD-$17, 2S), could result in pricing pressure.
RELATIVE VALUATIONS STILL SUGGEST SOME DOWNSIDE RISK
While the stock price has corrected significantly over the last few months, on
a relative basis Intel's price to trailing twelve-month sales stands at 3.5x
which is still about 20% above the cyclical low of 2.8x set during the downturn
of 1996. This suggests a historical bottom of about $26; the 15-year low is
2.0x. On an absolute basis, Intel's current P/S ratio is 6.8x, which remains
significantly above the 1996 low of 2.8.
ITIONAL INFORMATION AVAILABLE UPON REQUEST |
