EARNINGS UPDATE:
ANALYSTS LOOK BEHIND
INTEL'S NUMBERS
By Peter D. Henig
Red Herring Online
July 14, 1998
Intel (INTC) took a chip shot from the earnings bunker,
but left it 2 cents short.
The semiconductor giant reported flat second quarter
1998 revenues of $5.9 billion and earnings of $1.2
billion, or 0.66 per share, down significantly from second
quarter 1997 earnings of 0.92, and off 8 percent from
first quarter 1998 EPS of 0.72.
However, analysts said the numbers behind the numbers
indicate that Intel's outlook remains mostly positive.
According to the company, revenue in the Americas and
Japan was higher than last quarter, while Asia-Pacific
was relatively flat with the first quarter of 1998, and
Europe was somewhat lower.
Describing the current business climate as "difficult,"
CEO Craig Barrett tried to reassure shareholders and
the investment community that Intel was indeed remaining
competitive. "We have cut costs, extended our product
line, and are ahead of schedule in using new
manufacturing processes. As a result, we have increased
Intel's competitiveness substantially."
Comparing apples to oranges
Wall Street didn't seem too dismayed that earnings per
share missed First Call's estimate of 0.68 by 2 cents,
given that the second half of the year tends to be
seasonally stronger for the computer industry, and that,
at least for this quarter, Intel was perhaps a victim of its
own cost-cutting success.
Despite settling 1.68 points lower at 80.68, Volpe
Brown Whelan analyst Eric Rothdeutsch was confident
Intel would deliver, upgrading the stock from Neutral to
Buy on Tuesday.
Ashok Kumar, analyst with Piper Jaffray, was equally
pleased. "It was in line with our expectations," said Mr.
Kumar, who just recently raised his second quarter
earnings forecast to 0.70, and maintains a Buy
recommendation on the stock. Mr. Kumar, noting that
second quarter earnings of 0.66 reflected an inventory
write down of 0.04 due to further transition to the
Pentium II chip and charges associated with Intel's prior
acquisition of Digital Equipment's (DEC) semiconductor
manufacturing operations, felt that essentially the
company had met his 70-cent estimate.
Robert Chaplinsky, an analyst with Hambrecht & Quist,
was also on board, emphasizing that investors should
look beyond the numbers to really understand how Intel
is doing.
"On an operating basis, they were a little below
consensus, but that's really not an apples to apples
comparison," said Mr. Chaplinsky. "They actually
performed better than expected in terms of cost
reductions, which hurt their bottom line, but which will
help them in the long run."
Intel stated that gross margins had fallen to 49 percent
from 54 percent in the first quarter, although the
company attributed at least two points of the reduction to
the "higher than normal inventory writedowns."
Mr. Chaplinsky further noted that Intel saw a significant
progress in their notebook chip business, and actually
experienced improvement in Japan. "With all of these
things, it looks like the third quarter could be pretty
good," said Mr. Chaplinsky. H&Q maintains a Buy
rating on the stock.
Forecast the future
In its earnings release, Intel also made several
forward-looking statements detailing its financial future.
In prepared comments, Intel stated it "expects revenue
for the third quarter of 1998 to be flat to slightly up from
second quarter revenue of $5.9 billion. Consistent with
the company's earlier expectations, second-half revenue
is expected to be greater than the first-half revenue."
The company also stated that gross margins should
improve over the long term, and that it will continue to
reduce its workforce by up to 3,000 employees.
With Compaq (CPQ), Microsoft (MSFT), and Apple
(AAPL) set to release earnings over the next few days,
investors will soon receive further validation as to the
current health of the computer industry.
Given the Dow's record performance of late, reaching as
high as 9256.61 on Tuesday, and the Nasdaq reflecting
the underlying strength in large-cap tech stocks -- it, too,
traded near record highs at 1979.64 -- investors are
finding a whole lot to love as this earnings season
unfolds. |
