G-S Research today .....
Intel Corp. [INTC] $21.68
INTC (RL): Cutting estimates for obvious reasons
EPS (FY Dec): 2001E US$0.46, 2002E US$0.42 - Recommended List
* Barely six weeks after putting Intel on the US recommended List, we are cutting estimates substantially ($0.60 to $0.42 in 2002). Following the events of Sept. 11, it seems likely that the PC demand recovery will be
postponed and the near-term impact of Windows XP diluted. Conference Board confidence measures reported Tuesday (Sept. 25) were very disappointing. We are maintaining our RL rating on Intel, as much of this seems already to be in the stock and the valuation is close to historical trough P/S levels. But Intel is now our least favorite RL name, with positive catalysts likely moved out to mid-2002. We prefer wireless/analog exposure in TXN, MXIM, and ADI.
* RECOGNIZING THE INEVITABLE. Last week, we noted that the biggest change in our sector view post-September 11 is on the PC side, where the confidence hit is likely to be felt most severely. PCs are among the most easily deferred technology/electronics purchases for both consumers and corporations. We did not cut numbers last week, but we knew that was where we were headed directionally. Goldman Sachs PC analyst Joe Moore today is cutting global PC unit growth assumptions modestly, from down 5% in 2001 to down 7% and from up 10-12% in 2002 to up 8%. Such forecasts obviously are moving targets at this point, but again, the
direction is clear, so we're hitting our Intel model as well. Most of what we hear from PC industry participants about the September 11 impact can be summarized as 'we don't know.' But this week, we have picked up some admissions that near-term business is weakening. The supply chain is suggesting that there have been few cancellations but that incoming orders have slowed. Based on our recent trip to Asia, PC component suppliers and contractors were already worried that 4Q sell-through would be weak and that seasonal trends would peak early, in October, and fall off thereafter. Now, there's reason for an even earlier peak.
* POSITIVE THESIS SERIOUSLY DAMAGED; KEEPING RL RATING BY A HAIR. It's humbling to seriously consider downgrading a stock that we upgraded only six weeks ago. Although we are keeping the RL rating on Intel, it's not an easy call. On the negative side, our guess is that a measurable PC recovery may now be postponed to 3Q/02. Sell-through for 4Q/01 is very questionable, and seasonality hurts the story in the first half of 2002. It's tough to push a stock now that has limited catalysts for the next three quarters. On the positive side, it's pretty clear qualitatively that Intel's accelerated Pentium 4 ramp is fixing the competitive problem with AMD that began in 2H/00, and this should show up in Intel market share gains in 3Q/01. Also, we believe that investors are excessively pressed/skeptical about the PC market and Intel's growth prospects over the medium term, and we're happy to take the other side of that argument. Finally, Intel's stock already reflects an adjustment since September 11, and the stock is one of the few that qualifies as cheap in historical context. |
