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

To: Glenn D. Rudolph who wrote (79565)	4/20/1999 6:12:00 PM
From: Maverick	Read Replies (2) \| Respond to of 186894

ML raises 1999 & 2K estimates to $2.41 and $2.96, from $2.37 and $2.81 On 4/14/99 INTC is rated LT BUY. Excerpts follow: Gross margin good, revenue only o.k. Intel reported net earnings of $1.999 billion or $0.57 per share for the March quarter, up 60% YoY but down 3% sequentially. The results exceeded our forecast of $1.928 billion or $0.55 per share. Revenue of $7.103 billion was up 18% YoY but down 7% sequentially, and undershot our forecast of $7.299 billion slightly. For all of 1999, we have revised our earnings estimate upwards slightly, from $2.37 to $2.41, and our 2000 estimate has been revised upwards also, from $2.81 to $2.96. Higher gross margin estimates underlie the improvement to our numbers. We are reiterating our intermediate term accumulate and long term buy ratings. We believe that most of the discrepancy between our $7.299 billion forecast and the $7.103 billion came from even more aggressive pricing than we had forecast, as opposed to weaker than expected unit shipments. Microprocessor unit shipments amounted to 25.5 million units during the quarter according to our model, down from an estimated 27 million in the December quarter. MPU revenue for the quarter was $5.9 billion, we think, down from $6.35 billion in the December quarter. Other parts of the business were down sequentially as well in our model, and at 83% of total revenue the ratio of microprocessor revenues to the total top line was unchanged from the December quarter. The biggest surprise was gross margin, which at 59% was a full 2.2% better than we had expected. The company attributed the strong performance to cost-cutting efforts, although we also think that a shift in the Celeron mix towards more competitive parts contributed as well. The launch of the PIII appears to have gone well, also supporting the improvement. 59% represents a 0.7% improvement from the December quarter, and is the best result the company has posted since June 1997. Operating expenses, at $1.55 billion, were almost exactly as we had forecasted in dollar terms, but at 21.9% of revenues somewhat higher than the 21% we had been modeling. Intel did report interest and other income of $347 million, $81 higher than we had been expecting, which works out to about $0.01 per share after taxes. Intel's forward-looking comments were mixed. The company expects June quarter gross margin to be in line with March results of 59%, but at the same time suggested that results for the whole year could come in at 57%, plus or minus a few points. That suggests an extremely severe gross margin in the latter half of the year, but when pressed company representatives seemed to have no reason to be looking for a decline during a time of year that normally sees margins improve. We think Intel is being deliberately conservative – we are modeling 59.1% gross margin for the whole year, and 59% for the June quarter. We're not surprised by Intel's expectation that revenues will be flat for the June quarter, but like the 57% gross margin number we think that the company is leaving itself room for upside. Comments in the call confirmed that the company is not seeing any buildup of inventory in channel, a problem that helped drag revenues down sequentially last year. We also asked whether there was any early evidence of unusual patterns in enterprise hardware spending, given Y2K concerns, and were told that Intel has seen nothing unusual so far. We are modeling $7.193 billion in revenue, a 1% sequential increase. The launch of Pentium III is probably the major factor behind a ramp in operating expenses for the June quarter that is exceeding our estimates – our model now shows operating expenses for the quarter at 23% of revenues, 1.6% higher than our old figure. The ramp in operating expenses more than covers the improved gross margin assumption of 59% for the quarter, and the result is that we're now forecasting earnings per share in Q2 of $0.55 as opposed to our previous estimate of $0.56. For the last two quarters of 1999, however, our earnings estimates have gone up. Intel has demonstrated that it's capable of pulling better than expected gross margin even out of a seasonally tough quarter, and we have no reason to believe that the company can't maintain or slightly improve those results in September and December. We have said before, and strongly continue to believe, that falling unit prices will result in stronger U.S. and overseas retail buying than anyone currently expects. Y2K spending freezes continues to be a wild card. However, for every enterprise that we've heard will stop spending, we've heard of another than intends to back-end load hardware spending following the completion of software changes. Our revenue estimates of $7.663 billion and $8.483 billion for Sept and Dec are unchanged. We've been saying since we reinitiated coverage of Intel that the accumulate story this year is based on a strong second half. If yesterday's numbers cause the stock to decline investors should treat the dip as a unique buying opportunity.