When I agree with bill, watch out. INTC has likely seen its all-time high, IMHO. An interesting read:
By Marcy Burstiner
Senior Writer
1/13/00 10:20 PM ETSAN FRANCISCO -- Intel (INTC:Nasdaq) beat the Street's estimates for fourth-quarter earnings by a mile. But the way the company did it has at least two analysts shaking their heads.
The chip goliath reported earnings of 69 cents a share Thursday, 6 cents better than a 63-cent consensus from First Call/Thomson Financial. Sales for the quarter jumped 8% to $8.2 billion compared with $7.6 billion in the year-earlier period. Net income, excluding acquisition-related costs, was $2.4 billion, up 15% from $2.08 billion
in the same quarter last year. After falling 3/16 during regular trading, Intel shares jumped 6% to 96 1/2 in the after-hours session.
Analysts Drew Peck from SG Cowen and Joe Osha from Merrill Lynch both said they were shocked to see that Intel's amortization costs and investment income were higher than what Intel led them to believe. Both wonder if the company is using discretionary accounting to beef up its income. Take away the extra amortization from acquisitions and the
extra money made by selling stocks in an inflated market, and the company had an OK quarter. Neither firm is an underwriter of Intel.
"I think they met expectations," said Merrill Lynch analyst Joe Osha.
"It's not accurate to say that 69 cents [a share] reflects the operations of the company."
Intel reported as operating income the $508 million it realized in interest and sales of equity holdings. Osha said the company had led analysts to believe that that number would be around $200 million. The other area in question is amortization of goodwill from acquisitions,
which was $241 million, up from the expected $185 million. Subtract out the difference of both, and you come much closer to 61.3 cents a share, or 2 cents less than the Street's consensus.
"They clearly made a conscious decision to boost [the numbers] this quarter, and it is entirely discretionary," Osha says. Osha refused to say that Intel was manipulating its numbers. But with the pace the company has been setting in acquisitions and equity investments, it clearly has the power to control when it will generate investment income simply by selling stock, he says. It can also control
the timing and amounts of its write-offs in a given quarter.
"In effect Intel can say, 'What number do we need? We better start selling securities,'" says Peck. "They opened up a can of worms. The outlook of this company's earnings is now a function of the stock market. Intel is starting to look as out of whack as the rest of the market. But then again, why not?" Factoring out the difference in amortization and income from stock sales, Peck also concluded that Intel would have missed the Street's
estimate by 2 cents a share.
Both analysts have been cautionary on Intel. Peck has a neutral rating on the company. Osha downgraded the stock from near-term buy to accumulate Nov. 12 and says now that he has no intention of changing that rating on either the fourth-quarter earnings or on management's bullish forecast for the first quarter. Neither Merrill nor Cowen are
underwriters of Intel.
Intel spokesman Tom Waldrop said there is nothing unusual about a company including interest and other income in its earnings per share. He said the company fully disclosed where the income came from and was not trying to portray it as chip revenue or other operating income. "We guide analysts ahead of time how much income we think it will be, and then when we report the quarter we tell them how much it actually was.
"Did the sales of equities contribute to the 69 cents a share figure? Absolutely they did," Waldrop said. "We've had equities now for years, and from time to time we've been selling. The number is what it is and people know what it is."
Still, the analysts were surprised at the degree that the sales boosted the earnings. Peck, who maintains he's never seen Intel report operating income from equity sales, says, "It's becoming half a microprocessor company and half a hedge fund." |
