To View Intel, Try Bifocals
By Hal Plotkin
CNBC.com Silicon Valley Correspondent
Nov 28, 2000 04:15 PM
Imagine a bunch of people trying on different eyeglasses to bring a moving object into focus. Some of them have the right lenses to see clearly into the distance. Some see clearly up close. And some just see a blur.
That pretty much sums up expert opinions on Intel Corp.'s stock these days.
On the positive side, several analysts say they expect to see the stock move up nicely over the short-term in anticipation of the company's release of fourth quarter numbers on January 16, 2001.
After that, though, most bets are off. While a handful of Intel-watchers say the stock should continue to rise over the next 12 months, many fear big trouble ahead: An economic downturn could arrive just when the chip market is awash in inventory early next year.
"Most of the optimism I'm hearing about Intel is related to this quarter," says Drew Peck, an analyst at S. G. Cowen Securities, based in Boston. "I'm not worried about this quarter. It's the first quarter [of next year] that I think is going to be frightening. We're looking at a weakening of seasonal demand and extra capacity. The net result is going to be a thrashing of pricing and a reduction in margins," he predicts.
Peck has been ahead of the pack on Intel for a while now. He first slapped a "neutral" rating on the stock early this year, well before the selloff that took it from its 12-month high of $75 to its current price in the mid-40s.
Intel's stock got a slight boost earlier this week when influential U.S. Bancorp Piper Jaffray analyst Ashok Kumar said INTC's recent skid made it more attractively priced. Many observers feel it was Kumar's well-publicized September downgrade of Intel's stock to "buy" from "strong buy."
Intel 52-week stock price
At the time, Kumar wrote: "Continued demand weakness could result in unit growth which is well below consensus estimates." That bland but pregnant-with-portent sentence was enough that helped touch off the stock's precipitous Fall fall.
On Monday, Kumar put out a new research note that left his formal buy rating unchanged, but which sounded a decidedly more optimistic note.
"The stock has now corrected significantly," he says now. "I don't expect a V-shaped recovery, but we do recommend that investors start accumulating positions."
Kumar says Intel is on track to post year over year growth of about 10% during the first half of next year, which would be in line with the company's performance over the second half of this year, but well off the 30% growth rate it enjoyed during the first half .
But overall analyst opinions remain sharply divided on the stock, a noticeable change from just a few months ago when most tech-watchers considered Intel a must-own holding. In more recent weeks, however, analysts have been expressing growing concerns about worsening overall market conditions and heightened competition from rival Advanced Micro Devices Inc. {AMD}, which after years of trying has finally caught up with, some even say surpassed, Intel on both features and performance.
As of this week, for example, just seven financial analysts rate Intel's stock a "strong buy," down from the twenty analysts who gave it that rating only three months ago. Most of those strong buy ratings have morphed in recent weeks to more tepid "moderate buy" or "buy" ratings, indicating a substantial weakening of analyst support for the stock. The number of "hold" ratings has likewise doubled over the past 90 days, to 6 from 3.
The analysts who still like the stock, such as ABN AMRO's David Wu, based in San Francisco, pin much of their hopes on what they think will be a robust corporate personal computer and server upgrade cycle that hits full stride next year. The theory is that sales of Microsoft Corporation's {MSFT} latest business computing operating system, Windows 2000, will drive sales of Intel's newest and highest margin product, the Pentium-4 microprocessor, which speeds up performance of the new software.
Widespread adoption of the new operating system won't occur until next year, says Wu. "Windows 2000 should really have been called Windows 2001," he notes. "Customers like to wait to make sure they've got all the bugs out whenever Microsoft comes out with a first release. I think we'll see the real move to upgrade corporate desktops in 2001."
Wu has an "add" rating on the stock, which is his firm's second highest recommendation, along with a $54 12-month price target. He says there are indications Intel will do very well next year thanks to what he says are booming markets in Asia, particularly Japan, and in Latin America.
"The PC business isn't dead," he says. "It's in fine shape and I think 2001 will show that."
Dan Niles, an analyst at Lehman Brothers, based in San Francisco, also has a buy-1 rating on the stock, his firm's highest recommendation, along with a $65 12-month price target.
But he admits he's a little torn between optimism and pessimism at the moment.
"I have a balanced view," he says. Niles agrees Intel could get the boost Wu is looking for next year from increased corporate upgrades. On the other hand, he says he's concerned that macro-economic conditions might put a damper on the market for Intel's products in both business and consumer markets.
"Q1 [of 2001] is really a question mark," he says. "Stocks are down, gas prices are up, people have less income to spend over the holidays. How many of us are going to go to the stores and buy a new PC?"
Niles says the truth is no one really knows the answer.
"I think the stock is going to go higher as you go through the rest of this year," he says. "I don't think 2001 is going to be as bad as some are saying, but 2001 is more problematic, and we'll have to think more about that."
Peck, of S.G. Cowen, says he has his thinking done.
"When you get to Q1 it's painfully obvious there's a problem out there," he says. "Unless you're a day trader, I'd really stay away from this one." |
