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Technology Stocks : Rambus (RMBS) - Eagle or Penguin -- Ignore unavailable to you. Want to Upgrade?

To: unclewest who wrote (24613)	7/13/1999 10:04:00 AM
From: jopawa	Read Replies (2) \| Respond to of 93625

uncle, Semiconductors Looking Past Earnings, Analysts Clash on Intel's Future By Marcy Burstiner Staff Reporter 7/13/99 9:00 AM ET URL: thestreet.com SAN FRANCISCO -- Tech investors looking for clear guidance from Wall Street on how to play Intel (INTC:Nasdaq) might be a little confused. On one hand, Mark Edelstone of Morgan Stanley Dean Witter and Joseph Osha of Merrill Lynch are shouting "buy," and on the other, Dan Niles of BancBoston Robertson Stephens and Jon Joseph of Salomon Smith Barney are waving red flags. Bulls like Edelstone talk about Intel stabilizing its product mix. That would help investors breathe easy, since the popularity of Intel's low-priced Celeron chip over its pricier and more profitable Pentiums threatens to erode profit margins overall. Bears like Joseph say the opposite. "Our own surveys suggest that Celeron demand continues to outstrip P-III demand," Joseph wrote in a report released Monday. Intel is facing several problems: Rumors continue to swirl about the troubled Camino chipset that Intel is making for new Rambus-based (RMBS:Nasdaq) memory chips. And Intel recently announced a delay until the fourth quarter of a new high-speed chip called Coppermine, which will be produced on a new and more efficient micron manufacturing process. And even Edelstone admits there's a real possibility of competition on Intel's higher end from Advanced Micro Devices' (AMD:NYSE) high-speed K7 chip. "I don't think we can discount it at all," Edelstone says. "You have to take a wait-and-see attitude toward it." Yet, Intel's stock has rebounded 30% since June 3, when it treaded near 50 -- a move caused in part by short-term hopes for a strong second quarter. "People were itchy to get back in," says Credit Suisse First Boston analyst Charlie Glavin. "I still say there is a lack of a catalyst to spur it higher until new products come out." That won't happen until late this quarter or early next, he adds. At this point, however, investors seem to care less about second-quarter profits, which will be announced Tuesday after the markets close, than about continuing profits in the second half of the year. It was in the second half of last year, after all, when Intel shares had their steepest rally in the company's history, doubling in price between September and January amid signs of a robust holiday season. Edelstone says he doesn't expect history to repeat itself this time around. Despite Intel's recent rise, Trent May, a portfolio manager of the Invesco Blue Chip Growth Fund, says he doesn't think this is the time to buy. He resisted the temptation to buy more shares when it dipped down near 50. Intel now accounts for only about 2% of his fund these days, half the weighting he normally maintained. "The risk is that it doesn't go anywhere or that it will give back some of its recent gains," he says. So little agreement is there on Intel these days that analysts say they can't name Intel's second-quarter whisper number, the last-minute, unofficial consensus for a company's earnings per share that is often more accurate than the First Call consensus. The First Call survey of 31 analysts predicts that Intel will report earnings of 53 cents per share, with a range from 47 cents to 55 cents. "Intel has become harder to model," Osha says. Not only do analysts have to gauge the demand for PC chips in general, he says, but they have to predict how Intel's high-margin Xeon chips for servers will do vs. the lower-margin Pentiums and Celerons. They also must quantify future sales of such new products as the StrongARM chip for handheld devices. And even as one competitor disappears, namely National Semiconductor (NSM:NYSE) on the low end of the PC spectrum, another and possibly stronger competitor emerges, such as Via Technologies. "I suspect that they have the willingness and ability to compete brutally on price," Osha says. Although Intel is clearly a company in transition, its management is not blind to the competitive threats, Osha says. Considering all the known problems Intel is facing -- popularity of the Celeron over the Pentium, success of the K7, problems with Rambus, delays in the Coppermine chip -- it still manages to protect its margins by cutting costs. Osha says he is convinced the stock will continue to rise. "You have a pretty cheap stock with a lot of negative expectations already built into it," he says. Harvey Hirschorn, chief economist and investment strategist at Stein Roe & Farnham, says Intel is a core holding that can be counted on. "We are comfortable with the outlook that things have stabilized," he says. "We are going to ride through the bumps." -------------------------------------------------------------------------------- © 1999 TheStreet.com, All Rights Reserved.