INTEL CORP. (INTC) 71 7/16 CLOSED. On Friday, this leading chip maker delivered news
regarding its Merced chip which probably caused many shareholders' stomachs to turn over
the weekend. It certainly was not a good way to spend the weekend. According to Intel, it has
notified its customers of a change in the production schedule of its new microprocessor,
delaying the volume shipments. Instead of making production runs in 1999, it now expects to
delay its next-generation Merced chip until mid-2000. This is a mighty blow to Intel and
high-end computer companies that were counting on the new processor for their workstations,
as well as software developers that have been designing operating systems and applications
for the 64-bit system. The delay in Merced is the latest blow to Intel who only a year ago had
a mighty grip on the chip sector. Since, then, however, the increased demand for lower-end
chips has prompted Intel to lose control on prices, which have started to trim margins and
earnings at a faster clip than anticipated. News of the delay is already starting to weigh on the
stock as Wall Street is beginning to turn bearish on the stock. On Instinet, the stock is quoted
around $68 1/2 and, with further negative comments from Drew Peck of Cowen & Co. and
Thomas Kurlak of Merrill Lynch, the stock could drift lower before the open. The biggest
consequence of the delay of Merced will be on an earnings turnaround as Thomas Kurlak
expects Wall Street to reduce estimates for 1999 as the delay will take away any bullish
recovery scenario for the stock in the coming year. Mr. Peck of Cowen also expected the
arrival of Merced to help pricing pressures at Intel. However, with the processor being pushed
back by at least six months, the much expected stability in prices and recovery in earnings will
need to be put off by the delay. Hence, with the earnings outlook a bit more clouded than a week
ago, shares of Intel will continue to slip further, putting pressure on the rest of the tech sector
as it has not been a very good three months for Intel shareholders.
By Briefing.com |
