John, here is part of article which appeared in Barrons, Sept. 25 "Intel's Rout Fails to Derail Broad Rally", by Andrew Bary.
"The drop in third-quarter profit estimates was mitigated by Intel's announcement that it now sees $ 900 million of interest and other income in that period, above its prior guidance of $ 800 million. This largely reflects gains on the company's equity portfolio, which totaled $7.5 billion on June 30.
Intel may appear reasonable at 30 times projected 2000 profits- below the price/earnings ratios of around 100 for the Fab Five (Sun, Oracle, EMC, Cisco, Nortel). But it's worth noting that the company's profits have been larded up with equity gains, which likely prove unsustainable. During the first half of 2000, interest and other income accounted for over 35% of Intel's 87 cents per share. For the third quarter, such income could account for nearly 25% of its profits. Equity gains alone this year could generate 30-35 cents of Intel's projected profits of $1.66 a share, meaning its gains-adjusted P/E is closer to 35 than 30. "
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John, Barrons seems to focus on Intel's equity portfolio and the belief that Intel cannot sustain the gains realized previsouly. I think you're right that their "miss" did not justify such a drop in price, and it was an over reaction. The stock may bottom out here, or go slightly lower to the mid to low 40's, but there is still opinion in the market that PC demand is slowing. PC's priced at $ 1000 have Intel products which cost $ 625 and the boxmakers will put pressure on Intel to drop prices. Lower ASP's for the boxmakers, result in price pressure on Intel, and lower gross margins. I think for the next 2 quarters, we will be in the 40 to 55 range for a while. It's a great opporunity to buy and accumulate more shares at lower price, and this opportunity does not come around to often. |
