Dan3:
"If a big spring rally starts up Monday, its rising tide will lift all boats (and stocks)"
Just too much weakness in the likes of CSCO, INTC etc for a major rally to unfold, methinks...More likely, any optimism arising out of last week's rally will be pricked by CSCO and INTC revelations this week...although we are probably nearing the market phase where investors discriminate on the basis of earnings...
Investors may not realize the gravity of the current negative financial trend unfolding at INTC until it is posted on Tuesday...For example INTC will certainly post NEGATIVE year/year revenue and eps growth from the $8 billion and $0.38 posted a year ago...In fact a y/y 10% decline in revenue growth (i.e to $7.2 billion) and an eps decline of 50% (i.e to $0.20) can virtually be considered a conservative given...Granted the consensus Q1 earnings for INTC have stealthily ratcheted down to somewhere around $0.20, but I just don't think the enormity and the rate of decline in INTC fortunes has yet sunk in with the investment community, but it may, when "hard copy" is posted on Tuesday...
Even more disconcerting for INTC must be that the prospects do not get any brighter for Q2, Q3 and Q4 with a capital investment arm now having to write off losses rather than contributing about 33% to eps value last year, the P3 and Celeron in their waning months and consequently the inevitable precipitous decline in their unit sales over the next 9 months as they become obsolete as entry level reaches 1 gig in Q2 and Dresden ramps up, a floundering P4 which may never really pose a viable threat to the Athy owing to its inherent architectural weaknesses coupled with large required wafer size...and not least important, the imminent arrival of the palomino family of processors which no doubt will erode INTC margins in the mobile, server and workstation spaces...Given the future outlook as outlined in the foregoing scenario, it is quite conceivable that INTC's Q1 may not be its low point for the year but on the contrary may well be its high water point in Y2001...I know, I know, INTC is ramping P4 at a faster rate than for any other product in its company's history...which may in fact, combined with the 50% scheduled price cuts, actually reflect desparation on the part of INTC management as opposed to prudence, particularly in view of the fact that there is no compelling current evidence to suggest that the P4 in any desktop guise will be marketable in volumes even nearly approaching the obsoleting, as we speak, P3, certainly not in quantities or at margins that will contribute meaningfully to the INTC bottom line...
All said, INTC is currently trending negatively both financially and in terms of relative product innovation owing to the new lean and mean competitor in the marketplace, AMD, who has outflanked INTC in the consumer space with superior price/performance products resulting in a dropoff in P3 gross margins of 10% (minimum) in Q1...More worrisome from an INTC perspective is that AMD is currently marshalling its forces for a similar assault, with its palomino family of processors, on the server, mobile and workstation spaces, with an ultimate outcome that may be even more debilitating to INTC than has been the Athy in the PC space...From my vantage point, the negative trends (financial and product innovation) at INTC still have a good piece to run...(in the vernacular, there is no V-shaped recovery in the cards for INTC in Y2001, and, in fact, based upon what I can discern, INTC is clearly still on the downward sloping portion of that V).
If the investment community is nonplussed about INTC's forward guidance on Tuesday, it could spell an abrupt end to INTC's strengthening price witnessed over the past week...After all, with declining unit sales combined with declining ASP's for the P3 throughout Y2001, INTC could well experience its first negative growth rate in several years and current Y2001 eps estimates somewhere around $0.70 might seem a little gaudy 6 months out...
A Y2001 eps of $0.70 suggests a multiple of 40 at the current $28 which would be high even for a company with an expected positive revenue growth rate of 20%...Given the very real possibility of a negative Y2001 eps (i.e a loss as opposed to a profit) and a negative (<10%?) revenue growth rate, a multiple of 40 would seem exceedingly generous...In fact a multiple of 20 would seem outside the bounds of the sustainable, and a multiple of 20, even assuming (which I don't) that $0.70 is attainable by INTC in Y2001, would imply, optimistically, a current price for INTC of $14...
Could be a significant devaluation in INTC pricing over the next 3 months, if not the next 3 business days, imho!!! |
