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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: rkral who wrote (178632)	7/14/2004 3:05:42 PM
From: The Duke of URL©	Respond to of 186894

With his faithful endian companion, Merrill, the daring and resourseful masked analyst of the plain, with black socks, led the fight for law and churning in the early days of the internet: Return with us now to those thrilling days of yesteryear!!!!! Joe Osha Rides Again!!!!! Hi-Ho! Silver Nitrate!!! From June 2002: (Intel was about 15) Ahead of the Curve Intel and the End of Faith Today on SmartMoney By Donald Luskin June 7, 2002 ...The final leg of the journey will be characterized by deterioration in sentiment out of proportion to the deterioration in fundamentals. That's what we saw Thursday when Merrill Lynch's semiconductor analyst Joe Osha downgraded Intel (INTC), along with several other semiconductor companies, from a rating of Strong Buy all the way to Neutral. Osha's call was based on Intel's stalled-out revenue growth, poor visibility and steep valuation — that is to say, it was not based on a single new piece of information. Rather, it was based on facts that have been available for months to anyone willing to face them — I've written about such things in this column and for my institutional clients since late last year (see, for example, "Intel Outside," March 8, 2002). All that's new is that on Thursday Joe Osha finally decided to face the facts. That he did so publicly was sufficient to knock Intel's price down 4.2%. After the close Thursday Intel issued its midquarter business update, and shocked the market by lowering its revenue guidance for the second quarter to a range of $6.2 billion to $6.5 billion, almost entirely ducking its previous forecast of $6.4 billion to $7.0 billion made less than two months ago. It will be ironic if Osha's downgrade ends up being regarded as prescient: In his report Thursday morning he totally failed to anticipate the magnitude of Intel's guide-down, forecasting instead that it would simply focus guidance to the lower-middle of the previous range at $6.5 billion to $6.8 billion. No, Osha wasn't prescient — he was just depressed. And that's an example of the kind of sentiment deterioration that will characterize the final leg. It's even more ironic — and an even better signal of the beginning of the final leg — that Friday's market is treating Intel's revised earnings guidance as significantly negative news. It's not. Nothing of importance in Intel's published statement Thursday afternoon or in its conference call Thursday night was new, and nothing indicates that business conditions facing the technology industry have gotten any worse than they already were. Even Intel's big drop in margins was nothing more than a logical reflection of its having shipped a greater percentage of low-price Celeron processors than in the first quarter — a quarter in which Intel's "value" processor was known to have been in short supply. The only revelation of any sort was that Intel's forecasts —and those of the Wall Street analysts whose work consists of little more than putting a story-telling gloss on company guidance — turned out to be too optimistic. Yet Intel fell another 10.1% in after-hours trading Thursday, for a total of 13.8% on the day; Nasdaq 100 and S&P 500 futures contracts traded sharply lower all night; and Intel and the major indexes posted big losses at the open Friday. ...No one was hopeful enough to ask when the corporate upgrade cycle would kick in. And no one gave enough of a damn about the technology to ask about how things were going with the high-end Itanium processor, or whatever other whiz-bang save-the-world gizmo Intel is supposed to be working on. No, this time it was all nuts and bolts about average selling prices and regional demand patterns — all aimed at nothing more than trying to make better forecasts next quarter than anyone made this quarter. Intel CFO Andy Bryant said over and over in the call that he had been too optimistic in forecasting the second quarter after the first quarter turned out better than expected. The key forecasting error seems to have been to mistake inventory restocking by customers for an increase in actual demand. As Bryant put it: "The first quarter was somewhat stronger than we expected — the second quarter was somewhat weaker. What I believe really happened is we shipped some parts in the first quarter that ended up in inventory, and consumption has been about as expected." This unraveling of inventory illusion may be the template for the earnings season to come — not just in technology companies, but across the entire economy. But there are no new facts in this template — just a new understanding and a new acceptance of a reality that has existed all along, and a waning of false hopes. That's what it means for valuations to come back to normal. ... That's the faith in technology investing that will have to be broken in order to complete the final leg of the journey back to normal valuations. It's sad and painful when faith breaks. But faith isn't an investment strategy — even though it may have substituted for one for the last five years. The only viable strategy is realism, and that's just where we're finally headed. Original report by Donald Luskin is chief investment officer of Trend Macrolytics