Here's the Forbes article for those who couldn't find it...some scathing words for Intel...especially the part about Intel clearly not being able to move chips thus the price cuts...which is a questionable remark.
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Tainted earnings
Take a peek at Intel's
fourth-quarter (ended Dec. 30,
1997) earnings' report. Wall
Street was expecting the company to
post earnings of around 90 cents a
share. But Intel surprised the Street
on January 14 with earnings of 98
cents a share.
Look closer and you'll see that
accounting tricks are responsible for
those better-than-expected results.
Intel's effective tax rate for 1997
was 34.8%, lower than the
estimated 35.5%. This translated to
roughly 4 cents a share for the
fourth quarter. In addition, the
company reported that its income
from businesses other than
microprocessor sales was about $50
million higher than expected. That's
another 2 cents a share. Finally, the
company bought back about 12
million shares, tacking an extra
penny per share onto its earnings.
What you are looking at is 91 cents
in earnings. Go down a wee bit
more, and you find that total net
inventories jumped to $1.7 billion in
the fourth quarter, versus $1.5
billion in the third quarter. And,
more telling, is the fact that the
company's finished goods
inventories were up 28%, to $514
million, in the fourth quarter, from
$401 million in the third quarter
ending Sept. 27, 1997.
Look closer and you'll see
that accounting tricks are
responsible for those
better-than-expected
results.
Intel is clearly having trouble
moving its product. Which goes a
long way towards explaining the
early January price cuts announced
by the company. Maybe this
explains some insider sales at Intel.
If an insider sells near highs, it is
called profit taking, but when
insiders sell their stock after the
shares have backed off from earlier
highs, that usually spells trouble.
And that's exactly what some Intel
insiders have been doing, according
to CDA Investnet, an insider-trades
tracking service.
From July to early October, when
Intel was trading at its alltime highs
of between $90 and $100, insiders
sold just 142,500 shares.
But between October 20 and 31, five
Intel insiders got rid of a total of
679,236 shares priced from $81 to
$86. The insiders were led by CEO
Andy Grove, who exercised options
totaling 648,000 shares, selling
520,000 of them in the open market
and transferring another 126,690 to
a trust.
The stock hit an alltime high of $102
a share last August before settling
in the mid-$70s.
Intel will continue to churn out a
profit and, perhaps in the next
millennium, will see surging
earnings after the release of its
64-bit Merced chip by the turn of the
century. (See The 64-bit question.)
But in the near term, the great times
are over. Maybe that is why the
stock posted only a minuscule gain
of 7.7% in 1997, a year which saw
the S&P 500 shoot up by more than
31%.
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Jim |
