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

To: Diamond Jim who wrote (56560)	6/2/1998 11:06:00 AM
From: IncredibleHult	Read Replies (1) \| Respond to of 186894

Kurlak rolls. April 15 isn't just tax day anymore. It's also ax day, the day analysts Thomas Kurlak of Merrill Lynch and Mark Edelstone of Morgan Stanley dug in their heels and staked their reputations on the fortunes of Intel (INTC:Nasdaq). After Intel beat reduced earnings expectations April 14, "Intel Grinch" Kurlak and a bullish Edelstone wrote nearly antithetical reports. Kurlak downgraded the stock to long-term accumulate from long-term buy, while Edelstone upped Intel to strong buy from outperform. At first, it seemed Edelstone was on to something: Intel's stock was up 13% from ax day through May 14. But since then, Intel's stock has slipped as investors worry about everything from plunging PC prices to a probable Federal Trade Commission lawsuit. Overall, Kurlak has the upper hand, with the stock down 3% and lagging the broad S&P 500 index by a percentage point. Is Kurlak pleased about this turn of events? Not particularly. "We don't feel good when a great company has problems," the top-ranked Merrill analyst said during an interview yesterday afternoon. "But it's part of our job to provide the best research we can and the goal is for our clients to make money." Kurlak originally turned bearish on Intel and the semiconductor industry back in late August -- he cut Intel to hold from buy then -- but now he thinks the chip maker's problems are more serious than he believed last year. "Over the last 10 years the primary driver of this industry has been the PC," he says. "But now a commodization of the PC industry is taking place and that also is commodizing the chips in the box." In other words, chip prices -- which have been falling rapidly for some time now -- will continue to fall indefinitely with PC average selling prices, he warns. <Picture> Kurlak's earnings numbers speak volumes about how bearish he has become. After Intel earned $3.88 per share on $25 billion in revenue in 1997, Kurlak set a $4-a-share target for 1998. He cut his estimate to $3.25 after Intel preannounced March 4, and Kurlak now predicts Intel will earn $2.95 in 1998. (His view is below the $3.15-a-share First Call consensus.) Edelstone's current EPS forecast is $3.25, but his office says that he has been "raising a cautionary flag up about Asia recently." That doesn't mean he has changed his rating or his 72-cent earnings estimate for Intel's June quarter, according to Edelstone's assistant. No matter what your opinion, Intel's earnings have declined dramatically over the last year. The Santa Clara, Calif., firm made $1.10 per share in the first quarter of 1997, but only 81 cents this year. Wall Street's -- and Kurlak's -- forecast for Intel's June 1998 quarter is 70 cents, nearly 25% below the year-ago period's 92 cents. Most revealing, however, is Kurlak's 1999 earnings estimate of $2.90 a share, which means the analyst is predicting back-to-back years of negative earnings growth, something that wouldn't probably have crossed an Intel shareholder's mind just a year ago. "When planning for the future, Intel was smart by building massive fabrication plants so it could make more chips than its competitors," points out Kurlak. "But it did not anticipate the emergence of the Internet." Kurlak argues that the Internet has changed the dynamics of the chip-making revolution, slowing revenue growth across the board. Kurlak believes Intel's revenue growth -- which has been steady at around 30% over the last decade -- will accordingly fall into the 5%-6% range. Of course, if Intel can turn things around in the second half, Kurlak will suddenly become a marked man. But based on his prescient bearish calls on Intel and the industry of late, it may be time to bestow him with the hallowed title of "Ax." (Don't worry, Kurlak haters: the mantle isn't permanent.) In order to get Kurlak's predictions on record, TSC asked him where he believed Intel's stock would end up this year. "I believe that the stock will stay in this range or go lower over the coming months," he concludes. (The stock was off 1 5/8 at 71 7/8 at mid-afternoon on 11.3 million shares traded.) "We think Intel's pricing is still under tremendous pressure." One final note: Mark your calendars for July 15. That's when Intel is expected to report its second quarter earnings. The current Street consensus is 70 cents. Ding!