From Barron's on the Intel meeting:
Intel Confab Bodes Ill for Chip Stocks
By ERIC J. SAVITZ
It was as if Moses came down from the mountain, but forgot to bring the tablets. On Thursday, several hundred chip industry analysts and investors converged on an auditorium in downtown San Jose for a four-hour briefing from the brass at Intel. With growing concern on the Street that the much-anticipated second-half recovery in corporate technology spending might not materialize on schedule, there were hopes that Intel Chief Executive Craig Barrett and his minions might offer a little insight on the state of the tech and telecom markets.
Alas, the company didn't offer the faithful much to chew on. Barrett said 2002 revenue would be higher than 2001's; he even declared himself to be the most optimistic he has been in his 30 years at Intel. But clearly, Barrett wasn't referring to the short run. Telecom demand, Intel executives observed, shows no signs of improving. And Intel isn't forecasting any increase in corporate IT spending.
Perhaps unintentionally, Intel provided a sobering tidbit about the semiconductor equipment sector. Dan Niles, Lehman's chip analyst, noted that one slide presented by CFO Andy Bryant indicated that Intel's capital spending in 2003 as a percentage of costs of good sold would dip a bit from 2002. Most analysts, Niles says, have been forecasting Intel's total cost of goods sold in 2003 would rise about 10%, which suggests capital spending for next year would be up less than 10% from the $5.5 billion budgeted for 2003. (Intel so far hasn't otherwise commented on 2003 capital spending plans.)
A rise of less than 10% would seem fairly disappointing giving the high hopes for a robust recovery: SEMI, the equipment industry trade group, has been forecasting a 29% sales increase for next year. Given the healthy performance of the equipment stocks this year, any moderation of expectations of the coming recovery wouldn't be good news for the sector.
Niles, who has been advising Intel investors to "sell on strength," also sees danger ahead for many mainstream chip stocks.
In recent months, he maintains, chip makers have benefited from overly zealous inventory cutting done by personal computer makers in late 2001. The result has been a need for the box makers to replenish inventory.
But Niles contends that inventories are nearly back to normal, which suggests that sales growth in the second half of the year will require improving demand from tech and telecom end markets. Expectations are high that Intel and other chip makers will show a smart recovery in the year's last six months. But, so far, no signs of an impending pickup have materialized. And, Niles notes, valuations are rich. |
