To All, Intel Shares A Little Joke With The World
Intel?s eps report is so full of holes it is hard to know where to start with analysis. So, this will be a note that sort of bounces around from topic to topic in no order. In other words, just because one example of blue smoke and mirrors appears before another does not make it more important than the points that follow.
1. First, the headline on the web page, that Intel earned 69 cents, is a flat out lie and I am surprised that Intel used it. The fact that the analysts caught them in this flim-flam but just pulled a nudge, nudge, wink, wink gives me a chuckle. O.K. here is the way the game is played, Intel. No more bush league tricks. Even the room temperature IQ analysts who follow your company could see through this one. If you have one time charges and income, you either count both or do not count both. Both methods have supporters and a rationale behind them. However, your trick of counting the gains and ignoring the charges is sleazy even for Intel. Yes, the analysts ain?t too bright and your shareholders are either co-opted to the scam or slow of wit, but even they recognize this as an insult their intelligence and an embarrassment to Intel. So, eps were either 61 cents, counting both writeoffs and one time gains, or 64 cents, counting neither. The 69 cents in your headline just didn?t happen. BTW, the 61 cents misses the pre-hype number and the 64 cents misses the after-hype whisper number. And, the 61 cents was really barely over 60.5 cents so Intel could have a round up effect. Ain?t it great to run a hedge fund in house to fluff these numbers so finely? <g> To make the 69 cents number, the round up was much less. Hmmm, wonder if Intel ever has to round down? Not as long as there is a pencil sharpener in this great land of ours. <g>
2. Operating income was 2,754 million vs. 2,836 million last year. In other words, the chip business sucks. However, interest and other income jumped up to save the day. BTW, cash was down, so the other is mostly the hedge fund smoothing, about which much more later. Even the 69 cents fake-o number has flat income from last year without the $264 million kick-in from interest and other.
2. I expected a heroic receivables dump, but, then, I expected Intel to actually pretend that chip sales were good. Neither happened and some of the alternative ways for them to sharp pencil the eps took precedence.
3. Long Term debt was up 36% from last year. Short term debt up 44%. Uh, isn?t this co. supposed to have cash flow to fund operations? <g>
4. Shares outstanding went up quarter over quarter. Where does that share buyback money go and how do I get a piece of the rakeoff? <g>
5. Capital spending was slightly down sequentially, which often happens when a company is struggling to fake a number. Odd it should happen when they ?can?t meet demand.? <g>
6. About mergers and acquisition costs. How much of these charges represent legitimate operating expenses at the companies acquired? This is an area that the SEC says companies are abusing, though they haven?t said it specifically about Intel. Then we have to look at how much inventory was written down at the acquired companies before Intel included them in their eps reports. It is nice to have inventory carried at zero that you can sell for something at 100% gross profit during a tough quarter. Unfortunately, we will have to see the 10Q before getting our first inkling of how much this game contributed to reported numbers. This is not to diminish the fact that I thank Intel profusely for making me whole in some of my long portfolio bowwows like Shiva and Chips and Technologies. <g>
7. O.K., the guidance. If the company cannot meet demand, why would first quarter be down a bit? Yes, I am aware of the seasonal factors, but if you are running flat out, that should supersede seasonals.
8. On Hedge Funds at corporations, or, welcome to my world. First, as a former hedge fund manager, I think every corporation should have one and Intel is following in the footsteps of every stock P&C insurance company and General Electric in using investment activities to cover operational weakness at a mature, slow or no growth company. I love to see some of the techniques I pioneered being used by Intel. There is certainly nothing wrong with hedge funds and Intel has proven that they are very adept at buying fluff stocks during a manic bull market. However, we should note that Intel Capital is a ?Realized Hedge Fund,? not a real one, and a non-diversified one at that. A realized hedge fund just talks about assets under management and capital gains. It is not required to mark to market in the income statement. That leads to an inevitable policy of cutting profits and letting losers run when basic operations are in as bad a shape as they are. That didn?t happen this quarter as the gains in internut stocks were huge. But that will not always be the case. So, I say, welcome to the hedge fund community and good luck managing the cash flow from your mature, non-growth businesses. But, as investors, we have to give Intel credit for its trading savvy, at least during bubbles, but also realize it has nothing to do with their basic business. And when you look at the names in this portfolio, it makes Munder Net-Net Fund look like a bunch of cowards in the risk department.
So, funny report that the market seems to have bought into so far. My main observation is that if Intel, which is a co. that should benefit from unit growth of computers, had to hustle this hard to put out a presentable number, what will happen to all the cos who are tied to computer dollar sales, not unit growth? In other words, Intel?s quarter had a cold. The boxmakers have and will continue to have pneumonia. For my part, I am buying my last third of puts on Intel and my second third on Compaq in the wake of the market's misinterpretation of these numbers. |
