from smartmoney.com
Intel bulls came to the rescue Friday, sending the stock higher in the morning. That's after Intel fell nearly 7% Thursday on worries that the company's unit shipments and average selling prices were lower than expected last month.
"We do not agree with the reports," said Merrill Lynch analyst Joe Osha, who reiterated his Accumulate rating on Intel shares in a report Friday. "Average selling prices are of course declining -- our own model assumes that ASPs will decline 3% sequentially during the current quarter -- but we have no reason to believe that prices are falling more quickly than that. Our checks with Intel also indicate that unit volume during the month of April was up in line with our expectations, and that [Pentium III] uptake is proceeding in line with our model," Osha said.
Ashok Kumar at U.S. Bancorp Piper Jaffray also brushed off the concern, noting that his earnings estimates reflect the seasonally weak unit growth and continuing decline in chip prices. "However, the feng shui masters in the analyst community were able to read the runes and conclude, with just over 40% of the quarter on a timeline basis completed, that the June quarter will be a disappointment," Kumar joked in a research note Friday. He expects unit sales to be down 3% to 24.5 million units in the current quarter from last quarter. This drop is in line with the average sequential decline typically seen in the June quarter. Unit growth is projected to be 17% higher than the same period a year ago. "With about 40% of the quarter's shipments going out in June, there is potential for upside," Kumar said in a report Friday.
Indeed, the bad news from distribution companies may have been misinterpreted, explains Merrill's Osha. April sales at Avnet (AVT), a distributor of components and chips, dropped substantially from March's levels because of its own problems. "The problems that Avnet is having in MPU distribution are to a large extent unique to the distribution channel, and do not affect the direct portion of Intel's business," Osha said.
In fact, the news from retailers is positive. Electronics retailers Circuit City (CC) and Tandy (TAN) reported strong PC sales Thursday, while chip demand for enterprise desktops should spread relatively evenly over the year, he explained. Osha's earnings forecasts for fiscal years 1999 and 2000 are $2.41 and $2.96, respectively, substantially higher than the consensus estimates of $2.33 and $2.72. Says Osha: "We expect selling prices for individual microprocessor lines to continue declining during 1999. We also expect the decline to drive larger unit volume during 1999 than anyone expects." MR
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