hello everyone,
Just for your information:
january 14 1998
Tom Kurlak's eagerly anticipated (or otherwise) reaction:
Outlook still soft
Investment Highlights:
- stock rallies on false hopes
- no upturn appears imminent
- sales not growing
Fundamental Hightlights:
- sales decline in all markets except europe
- see flat Q1 sales
- Down earnings expected
- Price cutting intensifying
Q4 Below year ago -- Sales Stalled (excerpted)
Fourth quarter earnings of $0.98 a share were 8%
below last year on a small 1% sales gain. Compared
to our $0.86 forecast, this result benefited by $0.04 from a
lower tax rate of 32.8% in the quarter and by $0.02 from higher
non-operating income and interest.
..
Sales in US JAPAN and Asia Pacific fell sequentailly
in Q4 while Europe jumped by over 30%. We expect
the European demand surge for Pentium MMX which
lags U.S. cycle, to subside in 1998. Management
expects flat sequentail sales in Q1.
Earnings should decline sequentially Q1 and Q2 to an
estimated $.91 and $.87 respectively as the gross
margin falls. This compares with 1997 quarterly
earnings of $1.1 and $0.92 respectively.
Intel has reported 5 straight quarters of essentially flat
sales and earnings. this trend should continue into 1998.
Year to year, earnings are now declining on only nominal
revenue growth. We project down earnings year to year
through Q4 1998.
Despite the rapid ramp up of Pentium II, the company has
still not been able to drive revenues upward with any
momentum due to large price cuts across its product
line. Since year end, we have detected even more rapid
price reductions. We estimate that the $213 Pentium 200
with MMX isn ow selling involume to large OEM's for less than
$100. the Pentium II 266 which was recently cut to $268
is currently selling closer to $200. In addition to lower
prices, the greater percentage of purchased parts in
Intel's Pentium II also produces a lower gross margin.
Inventories rose 13% sequentially or over twice the
sequential sales gain and given stepped up price
cutting, is probably not a good trend. Operating
earnings were 15% below Q4 and the margin was
the lowest for the year.
Maintaining Estimate For 1998 and Opinion
We have made no change in our 1998 eanings estimate
range of $3.50 - $3.75 a share. down about 6% from 1997
at the midpoint on a revenue growth assumption of 7.8%
over 1997.
The stock has recently rallied about 15% based on
reports that Q4 earnings would exceed expectations.
That has happened, but for reasons that we think are less
than satisfying. Given the Q1 management guidance,
the likelihood that Europe alone cannot produce much
revenue momentum for the entire company, that margins
are expected to decline sharply and that pricing
remains weak, the stock is likely to sell off in our
opinion.
We recommend that investors continue to wait for a better
buying opportunity.
ameneamene That's all folks
Rating B-3-1-7 Intermediate neutral, longterm Buy. |
