JPM is not impressed with October demand either
04:41am EST 28-Nov-01 J.P. Morgan (Eric Chen, Ph.D.) INTC INTC.N
1 of 2 Intel Should Meet Q4 Guidance; Upside Unlikely
**** JP Morgan/JP Morgan H&Q **** JP Morgan/JP Morgan H&Q ****
Company: Intel Corporation
Price: 32.31
Recommendation: Long Term Buy
Notes: a, f
Analyst: Eric Chen, Ph.D. 415-439-3210
Date: 11/28/01
1 of 2 Intel Should Meet Q4 Guidance; Upside Unlikely
* Our industry sources indicate that Intel's demand for raw wafer and
photoresist dropped off in October and November, suggesting weak output and
shipments in November and December.
* We believe Intel's Q4 will be characterized by a strong October, followed by
a somewhat weak November and December.
* Although we believe the company will meet its top-line guidance of $6.2-$6.8
billion, upside from the mid-point will be difficult, in our opinion.
* We also believe there are tens of thousands of motherboard inventory in
China, where PC demand has experienced a slowdown.
* The stock is up 67% from its September 21st low of $19.30, vs. 41% and 36%
appreciation for SOX and NASDAQ, respectively. We would not chase the shares
from current levels. Maintain Long Term Buy rating.
2000 A 2001 E 2002 E
Q1 EPS $0.35 $0.16 $0.07
Q2 EPS 0.50 0.12 0.08
Q3 EPS 0.41 0.10 0.12
Q4 EPS 0.38 0.08 0.17
FY EPS 1.65 0.46 0.44
FY REVS (M) 33,726 26,124 26,927
CY EPS 1.65 0.46 0.44
CY P/E 19.6 70.2 73.4
FY Ends Dec Current Price $32.31
52-Week Range $19-47 Market Cap (B) $222.2
Shares Out (M) 6,876 Book Value $5.22
Net Cash/Share $1.49 3-Year EPS Growth NM
CY02 P/S 8.3
Our industry sources indicate that Intel''s demand for both raw wafers and
photoresist peaked in September and dropped off in October and November.
Recall that raw wafer and photoresist demand can be a leading indicator of
the company''s output by roughly four to six weeks, because it typically takes
an average of four to six weeks for the wafers to flow through the fabs and
complete the manufacturing process. Thus, the decline in raw wafer and
photoresist demand in October and November indicates weak shipments are likely
in November and December. This is very different from average seasonal
behavior, which is characterized by a 25% sequential unit decline in October,
7% sequential increase in November and 13% increase in December.
Anecdotal evidence regarding Intel''s wafer and photoresist demand appears
to indicate a stronger than usual October, followed by a somewhat weak
November and December. This abnormal seasonal pattern likely stems from the
strong volume ramp of P4. It also indicates that the current fourth quarter
is weaker than the normal seasonal pattern of MPU unit shipments (Table 1).
Excluding Q4 2000, which preceded the first annual decline of PC shipments
(2001), the average Q4 sequential growth rate would be 8% from 1996-1999. In
other words, while we believe that Intel is on track to deliver its revenue
guidance of $6.2B-$6.8B (as suggested yesterday by its management), it is very
unlikely that the quarterly result will be meaningfully better than the mid-
point of the guidance ($6.5B), in our opinion.
Table 1: Sequential Growth of Worldwide MPU Unit Shipments
Q1 Q2 Q3 Q4 Year
1996 2% 6% 3% 8% 18%
1997 -2% -2% 4% 2% 8%
1998 -2% -3% 15% 11% 9%
1999 -12% 5% 7% 12% 11%
2000 -1% 8% 3% -4% 18%
2001 -18% -13% -2%
Source: WSTS.
"Sell in" data should not be confused with "sell through" data. Our
industry checks with component manufacturers, disk drive manufacturers,
motherboard manufacturers and some PC OEMs seem to paint a surprisingly
consistent picture - that the PC unit demand in Q4 is likely to be "flat to
slightly up" from Q3. We believe that this is simply the "build-plans" of PC
OEMs, i.e., their forecast of Christmas demand, reflected throughout the
supply chain. We emphasize that this is still "sell-in", not "sell-through."
While it is too early to gather reliable "sell-through" data, we believe
that in select geographic markets, inventories are starting to pile up. Our
sources indicate that there are tens of thousands of motherboard inventory
piled up in China (roughly single digit percentage of total quarterly
worldwide unit consumption), where PC demand apparently experienced some
meaningful slowdown in recent weeks. We admit that this data point on its own
is incomplete, but it is definitely worth watching and serves to underscore
the difference between "sell-in" and "sell-through".
We would not chase the shares from current levels. Shares of Intel have
done well over the last several weeks, up 67% from the Sept 21st low of
$19.30, vs. 41% upside for SOX and 36% appreciation for NASDAQ. Given our
belief that substantial upside from the current quarter is unlikely, and that
uncertainties remain in "sell-through," we would not chase the shares from
current levels. |
