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

To: Tony Viola who wrote (71406)	1/14/1999 1:00:00 AM
From: Ibexx	Read Replies (1) \| Respond to of 186894

Tony and thread, Prudential raised INTC's price target from $130 to $170: ______ INTC: HUGE QUARTER. RAISING PRICE TARGET TO $170 FROM $130. Subject: Intel Corp. (INTC-$135 5/8)--OTC SEMICO COM EPS OPINION Current: ACCUMULATE/SELECTAnalyst: Hans C. Mosesmann (650) 320-1631 Prior: Christopher Danely (650) 320-1639 Risk: MODERATE 12-month Target Price; $170 Ind. Div.: - Yield: - Shares: 1753 mil. 52-Wk.Range: 141-64 EPS FY Year P/E 1Q 2Q 3Q 4Q Actual 12/97 $ 3.87 $ 1.10 $ 0.92 $ 0.88 $ 0.98 Current 12/98 $ 3.55A 38.2X $ 0.81A $ 0.66A $ 0.89A $ 1.19A Prior 12/98 $ 3.46E $ 0.81A $ 0.66A $ 0.89A $ 1.10E Current 12/99 $ 4.70E 28.9X $ 1.06E $ 1.07E $ 1.21E $ 1.36E Prior 12/99 $ 4.70E $ 1.00E $ 1.09E $ 1.23E $ 1.38E Current 12/00 $ 5.50E 24.7X * EPS from continuous operations is used for the FY99 and FY00 figures. -Q4 Upside surprise of $1.19 vs. our $1.10 estimate driven by 58% gross margins. -Q1 guidance is down sequentially, however we believe Intel is being conservative. -Capital Expenditures to decline 15% in 1999 to $3 billion. -Raising Price target to $170 up from $130. Intel once again blew away the numbers, exceeding our $1.10 fourth- quarter estimate, which we thought was the very high end of possible outcomes, and the Street estimate of $1.07. Gross margins at 58.3% were up a whopping 570 basis-points sequentially. While Intel guided revenue growth down for the first-quarter as well as indicated a 15% reduced capital expenditure number for 1999, the sense is that the company is pumping on all cylinders. New low-end Celeron offerings as well as the imminent introduction of the Pentium III (Katmai) should provide an excellent strengthening of the product segments in 1999. We reiterate our Accumulate (Select List) rating for INTC. Our new 12-month target price is $170, up from $130. We are leaving intact our 1999 revenue and EPS estimates of 32.0 billion and $4.70 respectively. We are introducing 2000 revenue and EPS estimates of $39 billion and $5.50 respectively. Fourth-Quarter 1998 UpdateIntel reported its fourth-quarter 1998 results yesterday with revenues of $7.6 billion, up 13% sequentially from $6.7 billion and 17% year over year. The company once again exceeded its pre- announced sequential growth expectations (November 11th) of 8%-10% as a result of robust processor demand across all product segments. Earnings per share for the quarter of $1.19 exceeded our $1.10 estimate by nine cents (the Street consensus was $1.07) and was up sequentially from the $0.89 posted in the third-quarter. Margins Up Big TimeGross margins for the quarter were 58.3% a 570 basis-point increase from the 52.6% in the third-quarter and well above our 55.5% expectation. Margin percentage was positively impacted by a much more favorable mix of Pentium II processor shipments, lower shipments of lower-margin Celeron processors, higher overall revenues, and excellent cost reduction efforts. Intel expects gross margins for 1999 to be 57% plus or minus a few points. Europe And APAC Were The Strongest MarketsGeographically, North America was up only 6% sequentially and 43% of revenues (47% in the third-quarter) which was relatively weak compared to Europe. Europe was very strong, up 35% sequentially and 30% of revenues (vs. 26%). APAC was also strong and was up 23% sequentially, representing 21% of revenues (vs. 20%). Japan was flat sequentially and 6% of revenues (vs. 7%) and exhibited no change in the Japanese domestic market regarding demand. Demand For PIIs And Xeons Offset Lower Than Expected Celeron ShipmentsDemand for Intel's processors was strong, particularly for the mainstream PII and high-end Xeon product lines, which offset the lower than expected shipments of the low-end (sub$1K segment) Celeron product. The company indicated that its expectations for doubling Celeron volumes sequentially in the quarter were not met due to stronger than expected PII demand. This compelled the company to shift more capacity to this more profitable product line. In addition, we believe Intel's Celeron performance speed specifications were not competitive enough during the quarter relative to AMD's K6- 2, which was a factor in losing market share. However, last week's introduction of Celeron processors at 366MHz and 400MHz places the company in a stronger position entering 1999. Lower Processor Units Offset >b>By higher ASPs We estimate average selling prices (ASPs) for the quarter exceeded $221, up substantially from our estimated $211 in the third quarter, driven by a richer mix of PIIs. Our unit estimates for the quarter are in the 26.0 to 26.5 million range, up from our estimated 24.0 million in the third quarter. For 1998, we estimate Intel shipped 93 million processors, up 15% from the estimated 81 million shipped in 1997. We expect Intel will ship 110 million processors in 1999 (up 18%) with an ASP of $215-$217 as a result of the ramp of the new higher ASP Xeon processor, which is a market expansion opportunity for Intel into the server and workstation markets. Market Segmentation Is Working - Intel Can Afford A Weak Low-End Solution Intel's segmentation strategy (launched in 1998) of providing optimized processor solutions for desktop, mobile, basic, and server/workstation has been very effective in meeting the needs of each specific market. Intel's strategy for 1999 is to become much more price and performance competitive at the low end, a market driven by the "speed" rating of the processor. For its other target segments, Intel will differentiate based on features, packaging, and system performance. Expect the PIII (formerly known as Katmai) introduction later in first-quarter to set the performance standard for the high- end of the desktop PC market in 1999. We believe this is a viable strategy, however one that will take a couple of quarters to stabilize given the competition at the low end and the uncertainty regarding the timing of Y2K driven demand in 1999. Other Products Chipsets, motherboards, embedded processors, microcontrollers, Flash memories, and networking products (Fast Ethernet cards and switches) were all up in the quarter in units. Chipsets and Flash memories set new unit records. Capital Expenditures To Decline 15% In 1999Capital expenditures for 1999 are expected to be $3.0 billion, down 16% from the $3.6 billion (excluding DEC) in 1998. This is not too surprising given Intel's focus on the reuse of fab equipment going forward. The company indicated that most of the decline in 1999 is due to reduced bricks and mortar spending, while equipment spending would remain flattish. The balance sheet is excellent with cash $7.6 billion, down from $8.7 billion in the third-quarter due to a change in investment maturities. Long term investments are now at $5.4 billion, up from $1.8 billion sequentially. Inventory days declined to 42 from 49 sequentially, which the company intends to bring up to more appropriate levels in the first-quarter. Capital spending an d depreciation in the quarter was $629 million and $734 million, versus $769 million and $734 million respectively in the third- quarter. _______ Sorry about the length, but report is quite thorough. No wishy washy stuff. Ibexx