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

To: Paul Engel who wrote (44970)	1/13/1998 11:30:00 AM
From: Paul Dieterich	Read Replies (2) \| Respond to of 186894

Lehman looks forward to today's earnings announcement: ------------------------------------------------------------------------------ ** EPS DUE 1/13 POST CLOSE; PREVIEW; CAUTIOUS VIEW MAINTAINED. ------------------------------------------------------------------------------ POST-CLOSE 1/13 EXPECT 4Q97 EPS ROUGHLY IN LINE WITH $0.90 CONSENSUS. Our best estimate remains $0.88, tho. INTC has provided little visibility other than to say that October-November was reasonably good and that in early December they were on track to meet their guidance. That guidance included sales slightly above 3Q97, gross margin (GM) flat or up slightly from 57.7%, operating expenses up 10-15%, and interest income of about $160 mil. OUR MODEL REMAINS AT $0.88, BUT THIS SEEMS SLIGHTLY CONSERVATIVE IN A LIKELY $0.87-0.92 RANGE. Vs. 3Q97, our models include 4Q97 sales +4.8% at $6.45 bil. with key X86 microprocessor (MPU) units +5% or more at 21.0 mil. (1.2 mil. Pros, 4.5 mil. Pentium 2s, 15.3 mil. Pentiums), MPU dollars up 2% or more with ASPs 3%. Our assumptions of GM at 57.6% and particularly op. expenses +12% seem conservative (INTC has kept discretionary spending below plan). HERE'S WHAT WE EXPECT MANAGEMENT TO SAY: Intel 4Q97 acquitted itself well in a difficult environment. Financial events hurt Asia/Pacific sales; other PC customers cut inventory and moved to a build-to-order model and faster product cycles. Long term, this is positive since our own product cycles have been hampered by customer inventories (for instance, the introduction of our Tillamook Pentium-233 notebook processor 4Q97 was slowed by existing stocks), but these same issues will have some ongoing short-term impact on 1Q98. MORE OF WHAT WE EXPECT MANAGEMENT TO SAY: Our 0.25 micron conversion will be completed around year end 1998, earlier than originally planned, and that will allow us to continue to move high performance P2s down to entry level price points at an unusually rapid pace. We will also bring out models later in 1998 specifically aimed at the needs of the sub $1000 market. Overall, we performed well in a difficult environment in 1997, and we are well positioned looking ahead into 1998. Digital imaging is a key growth driver,and we will lead that trend. Reflecting our optimism, initial 1998 capexplans call for growth above our long term sales growth target of nearly 20%. AND MORE OF WHAT WE EXPECT MANAGEMENT TO SAY: With regard to 1Q98, this normally soft, post holiday quarter appears on track to show some sales growth; expense growth should be minimal. For 1998 overall, gross margins will likely be above our long term low 50s' target. BOTTOM LINE SUMMARY: CAUTIOUS ON X86s. The good news is that INTC sells in the lower third of it historical relative sales and book value multiple range. The bad news is that likely ongoing market share and margin erosion suggests limited EPS progress during the next year. The single most important event for INTC would be news of further, serious production problems at AMD-$18 1/4- 3. We do expect AMD to face difficult profitability challenges, but AMD increasingly appears to have volume availability of competitive parts as evidenced by their recent win at Compaq. SO, WE ARE CAUTIOUS ON NEAR TERM STOCK PRICE PROSPECTS FOR INTC. WE CONTINUE TO RATE INTC 2.