Kumar:Europe to rebound to its historical seq growth of 30% enough to offset modest declines in the Americas and non-Japan Asia
Intel (INTC) 44 13/16 +7/8: The world's biggest chip maker is getting a boost today from an unexpected source. We say unexpected, because Ashok Kumar, an anlayst at USB Piper Jaffray, made a prescient call on Intel in September-- and it wasn't positive. Citing continued demand weakness, and an emerging oversupply condition that was expected to lead to a malignant pricing environment, Kumar downgraded Intel to BUY from STRONG BUY. Just a few weeks later, Intel warned that Q3 revenues would fall below expectations due to weaker than expected demand in Europe. Needless to say, Kumar's stock went up as Intel's stock went down. INTC, of course, has rebounded nicely from its recent lows as its Q3 results proved not to be as bad as the market feared, but it still remains well off its all-time high of 75 13/16 reached in August as concerns about end market demand have weighed heavily on investor sentiment. Intel fueled such concerns by tempering its sales guidance, saying it expected 4-8% sequential growth in Q4. In '98 and '99, the sequential gain in Q4 revenues was 13.1% and 12.1% respectively. Despite Intel's own guidance, though, Kumar wrote in a research note today that, barring an exogenous shock, he thinks it is possible for Intel to achieve 10% sequential unit growth and that revenues should be in line with that increase. Furthermore, Kumar is projecting operating expense growth to be in-line with sales, and subsequently, thinks there should be about a penny upside to the current consensus EPS estimate of $0.42. Among the chief reasons for Kumar's positive outlook is that he expects Europe to rebound to its historical sequential growth of about 30%--enough to offset modest declines in the Americas and non-Japan Asia. Kumar is also touting Intel's decision to draw down its OEM inventory through a Dutch auction and to write down slower speed parts in an effort to alleviate any oversupply and the resultant depressed pricing environment. Strikingly, Intel-- and many of the PC makers for that matter-- haven't traded too enthusiastically today. Kumar's one mistake in the aforementioned downgrade was that he underestimated the market's reaction to Intel's likely disappointment. He said at the time that he expected INTC to pull back into the 60s... well, it pulled back into the 30s, and apparently, took some of Kumar's influence with it. As for his current call, Kumar noted that without constructive volume, INTC may be able to fill the bottom end of its gap ($50-$52) before it runs into overhead supply (the latter is technician speak for saying it isn't likely to go much further).-- Patrick J. O'Hare, Briefing.com |
