Top Chipmaker Intel Lagging In Market, But For How Long?
BY JAMES DETAR
INVESTOR'S BUSINESS DAILY
Posted 2/23/2006
What happens when the posse takes off without the sheriff at the lead? Generally, confusion.
But that's not the case in the chip market. Analysts say there are good reasons why industry kingpin Intel's (INTC) shares have fallen about 30% in the last seven months, at the same time chip stocks overall — especially that of Intel archrival Advanced Micro Devices (AMD) — have risen by about the same percentage.
Some analysts also say something else: The sheriff has plenty of bullets left. These analysts look for a return to order fairly soon.
"AMD has had very good design recently, and it's produced some products that compete well," said A.G. Edwards analyst David Wong. "But in the long run, Intel, with its greater resources, is likely to remain the dominant (chip) company."
Dominant it long has been. Based on 2005 revenue, Intel's nearly three times as large as No. 2 chipmaker Texas Instruments. (TXN) But that's scant comfort to recent shareholders. The Santa Clara, Calif., firm's stock has fallen 30% since July, closing Thursday at 20.29.
The stock took a big hit in mid-January, when the company reported fourth-quarter results that fell short of its own guidance and of analyst expectations. And its guidance for this quarter lagged analyst expectations.
"Intel's stock is in a show-me mode," said Jefferies & Co. analyst John Lau.
But Intel has showed Lau, and Wong, something. Both rate Intel a buy, and AMD a hold.
Where in the last 18 months or so AMD has released superior chips to those of Intel, the analysts foresee some high-quality product releases from Intel in the road ahead. AMD's used its cutting-edge products to take share from Intel in many computer markets, especially servers, but many analysts expect Intel to regain some of those losses over the next year or so.
That feeling isn't unanimous. ThinkEquity analyst Eric Ross changed his rating on Intel to accumulate from buy three weeks ago. Wednesday, he downgraded to sell.
"Chip inventories are building," he said. "Their new chips aren't having a typical rollout. They're (selling) slower than usual."
AMD's stock, meanwhile, remains a stellar performer. Its shares have more than doubled since early July. Also, the closely watched Philadelphia Semiconductor Index, or SOX, is up 25% since July, to 525. And IBD's own 148-company semiconductor group is up 35% since July.
On Wednesday, however, Merrill Lynch issued a report saying 470 would be a fair market value for the SOX, basically foreseeing a slowdown after a nice run-up.
Yet, market research analysts are bullish on chips. Gartner this month upped its forecast for global chip sales this year, forecasting a rise of 9.5% to $258 billion. It had forecast 7.6% growth.
Gartner analyst Andrew Norwood says that's partly thanks to another strong PC market. The firm expects PC unit sales will rise 9.3% this year, to about 239 million. He calls that strong growth, though it would be less than the past two years.
Meanwhile, the Semiconductor Industry Association trade group forecasts global chip sales will rise 7.9% to $246 billion this year. That's up from a 6.8% gain in 2005.
Market tracker Semico Research is even more bullish. On Monday, it issued a forecast that calls for 17.3% sales growth this year.
Gartner's Norwood says the chip industry usually is very cyclical, with high peaks and deep valleys. But now it's in a period of steady, solid growth. "That's unusual," he said. "The chip business is usually boom and bust."
One reason for the moderation is that chip companies are doing a much better job of gauging their inventory. That's what Norwood says and what Semico notes in its report, though ThinkEquity's Ross worries about rising inventory at Intel.
Past bust cycles have been foreshadowed by chip inventories rising to unhealthy levels. That's not the case today, Norwood says, for most chip companies — including Intel.
"Intel is a well-tuned fighting machine," he said. "They do make some false moves. But they have some new products coming out and will be trying to win back some market share." |
