Street expects Intel to report a 38%
rise in second-quarter net
A service of Semiconductor Business News, CMP Media Inc.
Story posted 10:30 a.m. EST/7:30 a.m., PST, 7/12/99
SANTA CLARA, Calif.--Intel Corp. will be cranking out good
news here tomorrow afternoon (July 13), if analysts have it figured
right.
The world's largest chip maker will announce second quarter
earnings after the markets close, and analysts surveyed by First Call
Corp. are expecting a 38% rise to 53 cents a share. That compares
with a net of 33 cents or $1.17 billion that is reported for the second
quarter last year.
Sales are looking good too, and the Street expects an increase here
to $7 billion, up about 18% from $5.9 billion recorded last year.
Intel has regained some of the market share that it lost last year,
analysts said, by cutting prices.
Slow PC and chip demand have started to turn around, analysts
noted, and they expected them to improve through the rest of this
year.
Intel will report good profits, analysts said, because its production
costs are continuing to come down. Some analysts voiced concern
earlier over Intel's aggressive price cutting during the second
quarter, but that does not appear to have adversely affected
quarterly results.
Analysts predicted that the company's gross margin for the quarter
will be about 59%, unchanged from the first quarter.
Shares of the chip giant fell slightly ahead of its second-quarter earnings report Tuesday
after the close. While the chip market is considered to be on the rebound, there are
concerns about how declining PC prices will affect components makers. Intel has also
suffered from speculation concerning its eroding profitability and a delay in its latest Pentium III chip.
One of the steadfast bulls on Intel, U.S. Bancorp Piper Jaffray analyst Ashok Kumar, issued an
earnings preview Monday. He expects Intel to earn between 52 cents and 55 cents a share, compared
to 33 cents a year ago. The consensus earnings estimate is for 53 cents a share.
However, Kumar's $6.6 billion revenue forecast is about $500 million lower than last quarter. While the
number of units sold should be 20% higher compared to a year ago, they will be modestly lower than in
the first quarter. This quarter-to-quarter revenue decline is due to a 10% decrease in average selling
prices, he said, as Intel slashed prices to compete with Advanced Micro Devices (AMD) in the
low-end chip market.
After avoiding the cheap PC market, Intel jumped into the game last year in earnest. That raised
concerns that the company was selling too many of its cheaper Celeron chips compared to its
higher-margin chips. For the second quarter, Kumar doesn't see Intel's product mix for desktop PCs
being much different from the previous quarter's. He expects Celeron sales to be 36% of desktop sales,
compared to 33% last quarter. In the future, he expects Celeron to contribute about 35% of sales.
Looking ahead, Kumar expects the pricing environment for Intel's chips to be more "benign." He also
sees a strong 15% year-over-year unit growth in the second half. These factors could make for strong
earnings growth over the next few quarters, he said.
Intel's shares could also benefit from the shift back to large-cap stocks, he said. "With small cap
issues losing relative momentum, big cap issues are likely to dominate for a while. With Intel trading at
over a 20% discount to the market multiple on consensus 2000 earnings per share estimates, we
would recommend purchase on weakness."
On the other hand, Needham & Company analyst Tad LaFountain says that competition from AMD
could be heating up. AMD's new K-7 chip, which will begin shipping next month, will be faster than any
of Intel's chips and could create "real problems" for Intel, LaFountain says. MR |
