<font color=red>ABN AMRO downgraded Intel to "sell" rating
ABN Amro's Leming Says Sell Intel: Call of the Day (Update1)
2001-07-17 14:53 (New York)
ABN Amro's Leming Says Sell Intel: Call of the Day (Update1)
(Adds analyst comment in seventh paragraph.)
New York, July 17 (Bloomberg) -- Intel Corp. reports earnings
after the stock market closes today. ABN Amro Inc.'s Paul Leming
says investors should sell the shares now.
``The company will either miss the consensus estimate for the
quarter (noticeably), or will make the quarter by borrowing so
heavily from the third quarter, that third-quarter earnings will
be very disappointing,'' Leming wrote in a four-page report to
clients today.
The price war in microprocessors between Intel and Advanced
Micro Devices Inc. and plunging prices for flash memory -- chips
that store information when a computer's power is turned off --
mean that Intel probably won't meet sales and profit goals, the
analyst said.
Leming lowered his rating on Intel to ``reduce'' from
``hold,'' making him the only one of 29 analysts following the
company to recommend selling the shares. Intel could fall below
$20, a decline of at least 31 percent from yesterday's close, he
said.
Some investors said they were surprised that Leming lowered
his rating on the stock the day Intel reports earnings.
`Last Straw'
``The timing of it is surprising because the environment that
we're in seems to be one where companies prefer to pre-announce if
there is any possibility of them not making the quarter,'' said
Mark Herskovitz, manager of the $2 billion Dreyfus Premier
Technology Growth Fund, which owns Intel shares.
The analyst said the timing was coincidental.
``I'm sure people are going to say, `He did this to make a
splash,''' Leming said in an interview. ``I would have preferred
to do it two weeks before, or two weeks after, but internal issues
kept that from happening.''
He said he'd been ``concerned for a while'' about the price
of microprocessors. The ``last straw'' was Advanced Micro Devices'
announcement Thursday that the chipmaker may post a third-quarter
operating loss as prices tumble, Leming said.
Leming was out of the office Friday and on Monday conferred
with colleagues preparing a report on the outlook for the industry
before publishing his research.
Shares of the Santa Clara, California, company rose 57 cents
to $29.70 in mid-afternoon, erasing a 3.9 percent loss.
``As a rule we don't comment on analyst reports,'' said
Robert Manetta, an Intel spokesman. ``Everybody will be looking at
the earnings'' after the market closes.
Intel, the biggest maker of semiconductors, probably earned
10 cents a share in the second quarter, according to the average
estimate of analysts polled by First Call/Thomson Financial. For
the year, the average forecast is for Intel to earn 53 cents, with
76 cents expected in 2002, according to First Call.
More Pessimistic
Leming's forecasts are below the consensus. He predicts the
company earned 8 cents a share in the second quarter, and he
lowered his 2001 estimate to 42 cents a share from 56 cents and
his 2002 estimate to 60 cents from $1.
The 46-year-old Leming, an analyst since 1983, followed
chemical companies such as DuPont Co. and Hercules Inc. for most
of his career. He worked for ING Baring, which was bought by ABN
Amro this year. Leming switched to following chip stocks and began
coverage of Intel in May.
He said investors are using unrealistic growth forecasts in
valuing Intel. The days of the semiconductor industry growing 17
percent a year are becoming a ``hazy memory,'' Leming said, adding
that with personal computer sales slowing, it is not hard to
forecast microprocessor revenue growth slowing to below 10 percent
a year.
``It is difficult to reconcile that type of growth with a
premium valuation,'' Leming says. ``The average non-tech company
in the S 500 today trades at 15 times 2002 earnings. Even if you
are willing to attach some premium to Intel's multiple (old habits
die hard), it is difficult to come up with a rationale for Intel
to trade at more than 20 times next year's earnings.''
Intel now sells for 38 times next year's expected earnings.
Priced at 20 times, the stock would sell for $15.20.
Looking for Turnaround
Intel shares have fallen 60 percent in the past year versus a
20 percent decline in the Standard & Poor's 500 Index.
Because chips are used in everything from cell phones to
servers, investors are watching Intel and the rest of the chip
industry for signs of a turnaround in technology shares. The
Philadelphia Semiconductor Index jumped 52 percent from April 4
through May 21, only to drop 21 percent since then.
Intel, the ninth largest company in the S 500, on June 7
said second-quarter sales would be ``slightly below the midpoint''
of the $6.2 billion to $6.8 billion range the company predicted in
April. That marked the first time in four quarters Intel didn't
slash forecasts.
Leming said sales probably fell off later in the month.
Intel and Advanced Micro Devices have been fighting a
microprocessor price war, as evidenced by Advanced Micro's
announcement last week.
Advanced Micro's average PC-chip price fell to $75 last
quarter and probably won't rise this quarter, Chief Executive
Jerry Sanders said.
`Extremely Disappointing'
While Leming says Intel is likely to show less of a decline
in microprocessor sales than Advanced Micro because Intel sells
more chips for server and notebook computerss, ``the odds are high
that Intel's revenues from microprocessors will come in below
expectations.''
Outside of microprocessors, flash memory is Intel's largest
product, and Leming said ``revenues in this business were almost
certainly disappointing relative to expectations.''
His evidence is that Advanced Micro and STMicroelectronics NV
have both reported in their second-quarter results that flash
memory saw a ``dramatic deterioration'' in June because of price
declines stemming from overcapacity.
June is the most important month of the second quarter for
semiconductor companies, Leming said, because 43 to 45 percent of
microprocessors shipped in the second quarter are sent in June.
``June makes or breaks the quarter, and all the data points
we are aware of point to this June being extremely
disappointing,'' Leming says.
--David Wells in the New York newsroom (212) 893-3377, or
dawells@bloomberg.net/pas
Story Illustration: To graph the performance of Intel shares
versus benchmark indexes, {INTC US <Equity> COMP <GO>}. To see a
chart of Intel's earnings, {INTC US <Equity> ERN <GO>}.
Company news:
INTC US <Equity> CN
AMD US <Equity> CN
NI Codes:
NI CALLOFDAY
NI US
NI FEA
NI STK
NI COS
NI SEM
NI TEC
NI CPR
NI CA
-0- (BN ) Jul/17/2001 18:53 GMT |
