Yousef
plese do enjoy
-Albert
06:10pm EDT 18-Jun-02 J.P. Morgan (Eric Chen, Ph.D. (1-415) 315-6720) INTC
Intel : A Mixed Bag: Update From Our Recent Asian Trip (Part 1 of 2)
Intel : A Mixed Bag: Update From Our Recent Asian Trip (Part 1 of 2)
June 18, 2002
J.P. Morgan Securities Inc. - Equity Research
Eric Chen, Ph.D. (1-415) 315-6720
eric.x.chen@jpmorgan.com
Christopher Bliss, CFA (1-415) 315-6776
chris.bliss@jpmorgan.com
Donald Lu, Ph.D. (1-415) 315-6723
donald.lu@jpmorgan.com
Brian M. McNamara (1-415) 315-6722
brian.m.mcnamara@jpmorgan.com
Stanley Kiang (1-415) 315-6708
stanley.kiang@jpmorgan.com
Intel ( Market Performer )
A Mixed Bag: Update From Our Recent Asian Trip
Intel Market Performer
Ticker INTC EPS 2001A 2002E 2003E
Price(06/18/02) $22.02 1Q (Mar) $0.16 $0.15A $0.16
52-Wk.Range $18.96-36.78 2Q (Jun) $0.12 $0.11 $0.16
Mkt.Cap(BN) $154.78 3Q (Sep) $0.10 $0.15 $0.21
Price Tgt NA 4Q (Dec) $0.15 $0.17 $0.27
Fiscal Year Dec FY $0.48 $0.58 $0.80
Shares O/S(MM) 6,861.00 P/E FY 56.0 46.6 33.8
Sales FY (BN) $26.54 $27.04 $29.37
* Based on reliable industry sources, we believe another round of processor
price cuts will be inserted into Intel's roadmap, possibly around late July
timeframe and focused on the low end.
* The Computex tradeshow, which typically generates sizeable orders from the
clone market, has failed to do so thus far. Industry participants also expect
low activities in July.
* This is the latest in a string of failed attempts by the industry to
stimulate end demand - first new products, then price cuts, and now promotion.
The industry is left with very few options, if any, to boost demand in 2H02.
* The latest Intel roadmap introduces two new chipset technologies - 845PE and
845GE in Sept. We believe this will cause further channel confusion and
resulting in push outs of businesses from Q3 into Q4.
* Overall we maintain market perform rating on INTC, believing that muted
seasonality is likely in Q3 and the consequent lackluster financial
performance will fail to drive stock performance.
Stock View.Our team is currently touring through Asia visiting companies in
the technology supply chain. The following are some specific conclusions we
have drawn so far. In general, we continue to believe in muted seasonality in
Q3, resulting in lackluster financial performance that will be inadequate to
drive stock performance. We maintain Market Performer rating on INTC.
Sizeable orders from the clone PC market are typically expected post the
Computex trade show, although the timing can range from late June to early
July.We are currently in the second week post Computex, and we have not yet
heard of any major orders, nor did the companies in the PC supply chain sound
confident on July orders. It appears to be the case that the tradeshow
promotion did not spark strong clone market demand, at least not yet. We
believe the value of this observation goes beyond the weekly order pattern
that tends to be very volatile, because it represents the latest in a string
of apparently failed efforts by the industry to stimulate end demand. We first
had the new products (845G), then price cuts (of processors in both April and
May), and now the Computex tradeshow, all of which at one point were relied
upon, or hoped for, to serve as end demand stimulant. This is important
because, to the best of our knowledge, there will be very few actions the
industry can proactively take to help boost demand in the second half of the
year, with the exception of further price cuts.
Based on reliable industry sources, we believe another round of processor
price cut will be inserted into Intel's roadmap. We believe that the current
Intel roadmap shows no price cuts until Oct, which at one point helped to spur
some investor optimism. We believe that the extra round of price cut could
come as early as July and will be focused on low-end desktop processors. It is
also widely anticipated that mobile P4 prices need to be lowered. The
magnitude of the cuts is currently unknown. We believe that this will likely
be viewed as a negative by investors as it indicates soft demand and/or
confusion in the market positioning of various product lines. To us, the price
cut is less interesting than what happens because of it - whether it can help
to boost demand remains a question mark.
Intel's latest chipset roadmap includes the introduction of 845PE and 845GE in
the Sept time frame.We believe this will likely introduce some confusion and
uncertainty in the supply chain. What typically happens in the PC business is
for the platform to be stabilized and chosen for the second half of the year
at Computex. Obviously, given the PE and GE introduction, this will not be the
case this year. Not knowing the demand picture for the newer platforms, the
supply chain could choose to limit inventory buildup of existing platforms
exiting Q3, potentially resulting in pushing out of businesses from Q3 into Q4.
The new Hewlett Packard appears to be going through some challenging
transitions. One distributor mentioned to us specifically that the new entity
continues to attempt to stuff the channel with printer and PC products. Net
net, even without the extra channel stuffing, we believe HPQ's struggle will
result in excessive inventories because the high likelihood of the combined
company losing market share and thus lowering the revenue base to move
inventories.
To be fair, feedback from the PC supply chain is not uniformly negative on our
recent trip.Most people we've spoken to observed that, after declining
precipitously for several months, Europe is believed by many to be bottoming
out. Demand from Americas seems to be decent, but still absent of strong signs
of back-to-school orders. Asia Pacific remains weak, with the possible
exception of China. China PC demand in June looks more mixed as opposed to the
widespread strength in April and May.
We continue to believe in a mild pick up in PCs in Q3.This belief stems from
the signs of stabilization in spot prices, the indication of bottoming out in
Europe and some isolated indications of back-to-school buying from US and
Europe. Almost more importantly, we would like to make the observation that
the supply chain was relatively bloated going into Q2, but relatively lean
going into Q3. This factor alone should create an easy quarter on quarter
comparison.
In conclusion, we maintain our view of a positive but weaker than average
seasonality in the third quarter. Currently we are modeling 7% CPU unit
shipment growth in Q3 and 6% revenue growth for Intel. It is our view that this
kind of financial performance would not be adequate to drive stock prices. We
are maintaining our Market Performer rating.
Appendix: A Primer On Intel's Chipset Roadmap
After introducing 845G and 845GL in May, Intel is expected to introduce two
new chipsets, 845 GE and 845PE in September 2002. Chipsets assist CPU in
graphics, memory access, and system communication functions. We summarize the
features of these chipsets in the table below. Both 845PE and 845GE supports
DDR 333, a higher speed DRAM, while 845G and 845GL support only DDR266. 845G,
845GL, and 845GE all have integrated graphics functionalities, while 845PE
requires an external graphics card. Additionally, 845G, 845GE, and 845PE
offers higher front-side-bus and system I/O performances than 845GL.
Table1: Intel's chipset roadmap
Chipset Graphics Launch Production Memory FSB (MHz) System I/O
845GL Integrated May-02 May-02 DDR266 400 USB 2.0
845G Integrated Nov-01 May-02 DDR266 533 USB 2.0
845GE Integrated Jun-02 Sep-02 DDR333 533 USB 2.0
845PE Discrete Jun-02 Sep-02 DDR333 533 USB 2.0
Source: DigiTimes
We believe Intel will market 845GE and 845PE as the high-end chipsets, and
keep 845GL for the low-end computing platform. The company is likely to phase
out gradually 845G, and a few older versions of 845 (845D, 845E, and 845S) in
the near future. |
