Stephen and All,
My opinions;
Do I like it? No
Was I surprised? Yes
Will Intel go down in the near term? Yes
How low can it go? Until analysts begin to focus on Intel's long term prospects, rather than obsess on next quarter's earnings.
When this is all over, (and it will be soon), Intel will be in better position then it was yesterday, (before the earnings shortfall warning), ready to resume its upward climb. We have been through similar periods before and this will not be the last. As a long term investor, I view my job as picking the "right" buying points to add to my INTC core position. Most of the Intel shares that I own have been bought at inflection points such as this.
Yes, in the next quarter Intel will disappoint. For a stock that 10 days ago was 95, and this morning trading at 76, a 20% drop has all ready occurred. Therefore, it appears that a large part of the expected shortfall has now been factored into INTC's price. However, I don't think that Intel's exceptionately bright long term future is currently factored into the price. Therefore, I note the following;
---- Intel is in better shape today to absorb any weakened demand, than almost any other technology stock.
---- Intel's only remaining competition, AMD, will find it much more difficult to raise the necessary capital, in this negative environment, than they were yesterday. With AMD's continued yield problems, (their 10K released March 3 acknowledges such), a desperate need for cash, this year and next, could go unfulfilled. It would be highly doubtful that AMD would be able to survive in the microprocessor business if they are not able to obtain the necessary financing.
----Yesterday's earnings shortfall warning, appears to me, to be largely a continuation of the lowering of the average days in inventory for processors parts by specific OEMs. Namely IBM, CPQ and HWP appear to be attempting to follow Dell's success by going to a build to order model. As these large OEM box makers reduce the number of days for parts in inventory, Intel 's visibility becomes clouded. While I believed that this phenomenon had ended in Q3 1997 when the average days went from 47 to 43.5, it appears now that it still continues at even more accelerated rate. Hence Intel states that it is having difficulty with its "turns" business, and CPQ, IBM and HWP have warned of a potential decrease in PC revenues in Q1 98. Over the next quarter, and certainly by the second half of 1998, this problem should be over.
----Assuming the continued growth of the Internet and with the increased need for servers, combined with a timely release of Windows 98, the second half of 98 should be very strong growth for Intel.
----Lower costs for microprosseor parts, other than Intel's, will lower the overall price of PCs and help drive demand.
So you tell me how long it will take for investors to focus on the above? Had I not bought additional shares of INTC, when it was last time in the high 60s, I would be looking to purchase more INTC somewhere around here.
The biggest shame of it all, is that the timing of this warning announcement has added to the undeserved credibility of Tom Kurlak. Although, on this one, his warnings on Monday seem to have been justified.
Jules |
