TGPTNDR <edited>
below is the report at question, I think
Regards
-Albert
<edited> considering that his model assumes half of all unit sales are p4s
as of end of quarter and intel stated that they would not get to thet mark
until end of the q4 it is clear that his 32 mil is way above current expectations
02:42am EDT 17-Oct-01 Merrill Lynch (J.Osha (1) 415 676-3510) INTC AMD INTC.N
INTEL CORP:Margins bottoming - raising rating Part 1
ML++ML++ML Merrill Lynch Global Securities Research ML++ML++ML
INTEL CORP (INTC/OTC)
Margins bottoming - raising rating
Joseph Osha (1) 415 676-3510
INTC/$24.96/B-2-2-7 (Part 1 of 2).
ACCUMULATE* Long Term: ACCUMULATE
*******************************************************************************
Merrill Lynch, as a full-service firm, has or may have business relationships,
including investment banking relationships, with the companies in this report.
*******************************************************************************
Reason for Report: Earnings Analysis
Highlights:
o Intel reported results for the September quarter that were slightly better
than expected, and also set a margin target for the December quarter that was
better than our forecast.
o We are raising our 2002 earnings estimate from $0.64 to $0.69 - our 2001
estimate still stands at $0.47.
o The move to 0.13 micron and expanding market share should operate in
Intel's favor during 2002. Both factors have historically been positive for
Intel's stock price.
o Our intermediate-term rating is being upgraded, from neutral to
accumulate.
Price: $24.96
12 Month Price Objective: $30
Estimates (Dec) 2000A 2001E 2002E
EPS: $1.65 $0.47 $0.69
P/E: 15.1x 53.1x 35.9x
EPS Change (YoY): -71.5% 47.2%
Consensus EPS: $0.49 $0.63
(First Call: 10-Oct-2001)
Q4 EPS (Dec): $0.38 $0.09
Cash Flow/Share: $1.84 $0.45 $0.68
Price/Cash Flow: 13.6x 55.3x 36.6x
Dividend Rate: $0.02 $0.08 $0.08
Dividend Yield: 0.1% 0.3% 0.3%
Opinion & Financial Data
Investment Opinion: B-3-2-7 to B-2-2-7
Mkt. Value / Shares Outstanding (mn): $172,199.0 / 6,899
Book Value/Share (Sep-2001): $5.22
Price/Book Ratio: 4.8x
ROE 2001E Average: 8.8%
LT Liability % of Capital: 5.6%
Est. 5 Year EPS Growth: 15.0%
Next 5 Year Dividend Growth: 15.0%
Stock Data
52-Week Range: $47.88-$18.96
Symbol / Exchange: INTC / OTC
Options: AMEX
Institutional Ownership-Vickers: 49.6%
Brokers Covering (First Call): 24
For full investment opinion definitions, see footnotes.
Looks like a margin bottom - we are upgrading to accumulate
Intel's results for the September quarter were better than our estimates, and
we believe that the bottom in gross margins that we have been waiting for is
occurring now. We are upgrading our intermediate-term opinion from neutral to
accumulate - we think that it is time for investors to begin building a
position in the stock in anticipation of improved margins and growing market
share during 2002.
Q3 was slightly ahead of our estimates
Numbers for the September quarter were slightly better than we expected at both
the top and bottom line. Revenue of $6.545 billion came in ahead of our $6.298
billion estimate, and earnings of $0.10 beat our estimate by a penny. The
result would have jumped to $0.11 had it not been for an impairment charge that
was not incorporated in our model. Gross margin was slightly ahead of our
estimate, while operating costs were lower.
P4 ramp has outstripped our aggressive expectations
The speed with which Intel has ramped P4 is remarkable, and has exceeded even
our aggressive expectations. Our model shows P4 shipments at 12.5 million
units during the third quarter, or 46% of our total estimated unit volume of 27
million units. P3 has ramped down with similar speed. Intel's decision to
focus on recapturing market share with the P4, even at the expense of margin,
appears to have been the right one - the company clearly has picked up share on
AMD during the quarter.
Q4, 2002 estimates up
Our revenue estimate for the fourth quarter is being raised as a result, from
$6.15 billion to $6.66 billion. Our earnings estimate stays at $0.09 as a
result of another unanticipated impairment loss during the quarter, but leaving
that aside our estimate would have moved to $0.11. We are boosting our 2002
earnings estimate from $0.64 to $0.69, although our revenue estimate is largely
unchanged at $29 billion - slightly expanded gross margin and lower operating
cost estimates make up the difference.
P4 ramp will continue, and process transition will start
As we look into the fourth quarter and 2002, we can be fairly sure of two
things. First, Intel will continue to ramp P4. Our new model shows P4 volume
at 79 million units during 2002, up from 32 million units this year. We also
know that Intel will begin to reap the benefits of its massive investment in
process technology as it rolls production over to 0.13 micron manufacturing.
Both of those factors should underpin improved gross margin for Intel during
2002.
Some rocks during Q4, perhaps, but time to begin accumulating on a 12-month
basis
We have been saying for some time that it would be difficult for Intel's gross
margins to improve while the company continued to ramp the P4 on its 0.18
micron process - hence our conservative stance on the stock until now. With a
surprisingly robust Q4 gross margin estimate of 47%, it appears that Intel has
hit bottom, and at a higher level than we had expected.
We do believe that a hiccup in the currently smooth P4 ramp may be in the
cards, which could put some pressure on the stock in the short term. We doubt
that PC sell-through has been good for the last six weeks, while the scramble
to build P4 motherboards has continued unabated. That is a dangerous mix -
disappointing demand during November could easily cause a backup in new P4
orders. However, we think that investors should now be focusing on Intel's
earnings power during 2002 as opposed to near-term demand issues.
Back to 60%+ gross margins? Not likely
It is also important to note that an improvement next year does not necessarily
imply a return to the lofty growth and margins of 2000. Intel had two factors
operating in its favor then that it does not now. First, average selling
prices were underpinned by robust growth for server microprocessors and tight
supply on the desktop side. That will not be the case in 2002, and our model
shows a 10% decline in Intel's overall ASP during 2002 as compared to flat
performance during 2000. Secondly, depreciation will be up by 25% during 2002,
while Intel benefited from flat depreciation during 2000. Margin will expand,
but Intel is not going to see 60% for a long time.
Valuation still high on earnings, better on revenue
02:42am EDT 17-Oct-01 Merrill Lynch (J.Osha (1) 415 676-3510) INTC AMD INTC.N
INTEL CORP:Margins bottoming - raising rating Part 2
ML++ML++ML Merrill Lynch Global Securities Research ML++ML++ML
INTEL CORP (INTC/OTC)
Margins bottoming - raising rating
Joseph Osha (1) 415 676-3510
INTC/$24.96/B-2-2-7 (Part 2 of 2).
Valuation on the stock is not cheap at 36x our forecasts 2002 earnings, versus
a 1998 trough of 19x. On a revenue basis things look better, with the stock at
6x forward revenue compared with a 1998 trough of 5x. However, we note that
our gross margin estimate for 2002 could easily be low - forecasting the number
correctly at this stage of Intel's product cycle is difficult, and 1998
earnings estimates did not actually reflect the full scale of Intel's 1999
improvement either. We also note that the stock has tended to trade with the
direction of gross margin. That should continue to be the case during 2002. |
