Brian. All - LB
Brian, and what a bite it was - just take look at the following from
LB (below)
Regards
-Albert
10:47am EDT 15-Oct-97 Lehman Brothers (M. A. Gumport, CFA/C.Gangi 1(212)5) INTC
Intel Corp.: EPS Below Consensus; Projections Move Down
Ticker : INTC Rank(Prev): 2-Outperform Rank(Curr): 2-Outperform
Price : $91 13/16 52wk Range: $102-52 Price Target: $ 90
Today's Date : 10/15/97
Fiscal Year : DEC
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EPS -1996-- -----1997-------- -----1998------- -----1999------
QTR. Actual Prev. Curr. Prev. Curr. Prev. Curr.
1st: 0.51A@* 1.10A* 1.10A* 1.00E 0.90E 1.25E 1.05E
2nd: 0.58A* 0.92A 0.92A 1.05E 0.95E 1.30E 1.10E
3rd: 0.74A* 0.90E 0.88A 1.10E 0.95E 1.30E 1.10E
4th: 1.06A* 1.00Ex 0.86Ex 1.20E 1.00E 1.45E 1.20E
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Year: $ 2.90A@* $ 3.92Ex* $ 3.76Ex* $ 4.35E $ 3.80E $5.30E $ 4.45E
Street Est.: $ 3.99E* $ 3.99E $ 4.69E $ 4.69E $5.30E $ 5.30
@-Includes 1Q96 $-0.01 inventory write-down; *-Split adjusted
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Net Cash per Share* : $5.62 Revenue (1997) : $25.4 Bil.
Return On Equity* : 34.6 % Proj. 5yr EPS Grth : 15.0 %
Shares Outstanding(z): 1797.0 Mil. Dividend Yield : 0.2%
Mkt Capitalization : $165.0 Bil. P/E 1997; 1998 : 23.4x; 24.2X
Book*;Price/Book : $11.42/sh;8.04x Convertible : None
Disclosure(s) : C
*Puts in Equity unexercised; z-Share equivalents; x-4Q97 excludes $-0.06 in
process R&D writeoff for anticipated acquisition.
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EPS AT $0.88 BELOW $0.91 CONSENSUS. FLASH ISSUE HIGHLIGHTED; MPU UNITS
SURPRISINGLY STRONG (GOOD NEWS) AT RECORD HIGHS, BUT THAT SUGGESTS HEAVY PRICE
ATTRITION (BAD NEWS). GUIDANCE SUGGESTS FLAT/DOWN 4Q EPS BEFORE CHARGE.
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EPS BELOW TARGET. Post-close October 14, Intel reported 3Q97 EPS at $0.88
versus our $0.90. Consensus was falling from $0.93 to $0.91 or lower. Versus
our targets, sales 3.3% above 2Q97 were $-49 million (-0.8%), EBITD $-72
million (-2.5%). Gross margin (GM) fell 3.0 points (each point hits quarterly
EPS by over $0.02). Operation expenses at 20.5% was 1.3 points above target
due to a surprising dip in SG&A.
FLASH PROBLEM. Intel highlighted flash as a key 3Q97 issue. Units and prices
both moved down substantially (until now, Intel had done much better than its
few competitors) and pushed GM down two points.
PENTIUM FAMILY PUZZLE. The good news is units hit a record. Second-quarter
unit volume fell (we estimate nearly 15%) due to the MMX transition. The
sharp 3Q unit snapback (over 15%) was a surprise. The puzzle is, if Pentiums
migrated heavily to higher priced MMXs, and if total mix tilted to higher
priced Pentium-2, and if units are up sharply, why Pentium family revenue up
only about 5% versus 2Q. We believe large quantities of older Pentium
Classics were shipped. We also believe the unusually rapid pace of price
declines is having an impact. Finally, Intel noted that existing stocks of
older products has slowed the pace of Tillamook end-market sales (though
Intel's internal execution is on track), so we believe the impact of these
high-priced processors was limited.
PROJECTIONS DOWN. Versus 3Q, guidance from Intel is for 4Q sales up slightly,
GM flat/up, operations expenses up 10%-15%, other income at $160 million, and
a stable tax rate at 35.5%. If the acquisition of Chips goes through as
expected, there will be about a $0.06 charge. Excluding the charge, guidance
appears consistent with projections in the $0.85-$0.90 range. We note the
flash shortfall explains half the 3Q profit shortfall, but this nonstrategic
business may not rapidly recover. Meanwhile, MPU margins appear trending down
and Intel's long-term GM guidance has been slightly over 50%. Our models now
assume 20% sales growth for 1997, 16% for 1998, and 21% for 1999 but GM moving
down to a 56-57% plateau (old model: 60% plateau) and operations expenses
moving up from 21% to 24%. So excluding the Chips charge, we project 1997 at
$3.76 (old: $3.92), 1998 at $3.80 (old: $4.35), and 1999 at $4.45 ($5.30).
2 MAINTAINED, BUT . . . Intel could fall to $70-$75 as estimates go down. We
believe Intel is underpriced long term, hence our ongoing 2 rating (we are
rounding up our one-year target to $90 from $88). But down market share, down
margins, and down projections do not usually produce multiple expansion. We
upgraded Intel in 1994 on the basis that market share had bottomed, and we
downgraded it in 1997 on the basis that market share had peaked. The most
important driver of renewed EPS and multiple expansion for Intel (other than
the short-term impact of flash) now appears to be the execution of
competitors. The best driver still seems to be substantial ongoing market
share incursions and hence an aggressive price stance by Intel.
----09/30/96----- --09/27/97------------------
INTC 3Q ----------------- -LB EST. -Actual---------- VS
-$Mil.- --Ratio- -$Mil.- -$Mil.- --Ratio-- EST
Sales (ratio: % ch.) $ 5142 23.3 % $ 6204 $ 6155 19.7 % $ -49
860/960 $ 79 ---- $ 91 $ 84 ----
686-Pentium Pro $ 399 ---- $ 736 $ 736 ----
686 Klamath Pentium 2 $ 0 ---- $ 1029 $ 1022 ----
586-Pentium $ 3400 ---- $ 3021 $ 3071 ----
486DX&L $ 9 ---- $ 0 $ 0 ----
487SX/Overdrive $ 60 ---- $ 57 $ 57 ----
EPROM/Flash $ 290 ---- $ 335 $ 250 ----
Other $ 225 ---- $ 240 $ 239 ----
Systems $ 680 ---- $ 694 $ 694 ----
CGS. (ratio: % of sales) $(1705) ( 33.2)% $(1935) $(2045) ( 33.2)%
R&D (ratio: % of sales) $( 449) ( 8.7)% $( 588) $( 586) ( 9.5)%
SG&A (ratio: % of sales) $( 565) ( 11.0)% $( 761) $( 676) ( 11.0)%
EBITD (ratio: margin) $ 2423 47.1 % $ 2920 $ 2848 46.3 % $ -72
860/960 $ 18 22.8 % $ 21 $ 19 22.6 %
686-Pentium Pro $ 200 50.0 % $ 410 $ 410 55.7 %
686-Klamath Pentium 2 $ 0 0.0 % $ 527 $ 530 51.8 %
586-Pentium $ 2031 59.8 % $ 1742 $ 1746 56.9 %
486DX&L $ 1 13.0 % $ 0 $ 0 0.0 %
487SX/Overdrive $ 32 53.0 % $ 39 $ 39 68.0 %
EPROM/Flash $ 46 16.0 % $ 64 $( 13) ( 5.0)%
Other $ 44 19.6 % $ 62 $ 62 25.9 %
Systems $ 51 7.5 % $ 56 $ 56 8.0 %
Dep. (ratio: % of sales) $( 496) ( 9.6)% $( 547) $( 559) ( 9.1)%
Int. (ratio: % of sales) $ 91 1.8 % $ 150 $ 151 2.5 %
Pretax Inc. (ratio: margin)$ 2018 39.2 % $ 2523 $ 2440 39.6 %
Tax (ratio: tax rate) $( 706) ( 35.0)% $( 896) $( 866) ( 35.5)%
Net Inc. (ratio: margin) $ 1312 25.5 % $ 1627 $ 1574 25.6 %
EPS (ratio: % ch.) $ 0.74 41.0 % $ 0.90 $ 0.88 +18.2 %
Shares (ratio: % ch.) 1770 -0.4 % 1800 1797 +1.5 %
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