CNBC.com Intel Earnings

Nothing like being the first major tech company to step up to the plate with earnings as Wall Street stands ready to bean you with a vicious fast ball to the head.

But that's what Intel

INTC loading...

Quote  |  Chart  |  News  |  Profile

[INTC  Loading...      ()   ] will face Tuesday when it releases its third quarter earnings after the bell. Investors just don't know what to expect from the Street, or Intel, so it's pins and needles time ahead of this news.

These have been rough times for the world's largest chipmaker. Shares swooned along with the rest of the market the past few months with Intel shares plunging 32 percent since July, 40 percent since January. Intel's lost a staggering $43 billion in market cap just since September.

The Street is looking for 34 cents a share on $10.26 billion. But over the past few weeks, consensus around Intel has turned decidedly negative.

Analyst Vijay Rakesh at ThinkPanmure, an analyst and firm I haven't really spent a lot of time citing, grabbed headlines Friday with a "Sell" on Intel shares because of what he said was slowing growth of laptop computer sales, the cash cow for Intel over the past few quarters. In his report, he wrote: "We believe Intel is heading into a perfect storm in 2009, with some of the prior growth drivers fading and multiple macro and company specific headwinds."

At the same time, Intel's big flash memory partner Micron

MU loading...

Quote  |  Chart  |  News  |  Profile

[MU  Loading...      ()   ] announced a 15 percent workforce reduction and the shutdown of at least one chip fab that it jointly operates with Intel. The company cited slackening customer demand for NAND flash memory, as well as an oversupply of the chips. Flash memory has been an Achilles heel for Intel in the past and there's a chance that it once again can bite Intel's margins again. That's something investors will be watching very closely.

So that's the bad news. The good news is that Intel is a perennial manufacturing titan and knows how to squeeze every penny out of every wafer it makes. This company took the unusual step, in the face of micro and macro economic headwinds last quarter, to reaffirm its outlook which included a nice bump in gross margins, and expected that kind of performance to continue through the end of this year.

I spoke with Intel chairman Craig Barrett at the company's Developer Forum several weeks ago, and he sounded bullish. I got the same read from Intel CFO Stacey Smith as well. Granted that was before the tumultuous meltdown we've seen, but still in the midst of all those other signs suggesting global slowdown and concern. Intel, said Barrett, just wasn't seeing it.

It's that kind of bullishness that might have encouraged Piper Jaffray to upgrade Intel to a "buy" because of its "strong, competitive position and that its fabs (minus the NAND flash fab it was running with Micron in Boise) are running at full capacity. Couple that with Intel's valuation and the entry risk for investors at these levels become attractive. This was a $24 stock in August. And even with the tech rally we've seen these last couple of days, Intel shares are still trading at their trough, through all this drama. It touched $14 and change, and its P/E is a paltry 13. The company's got nearly $8 billion in cash and still invests billions every year on research and development and manufacturing efficiencies. Competitors trying to gain a leg up on this behemoth simply can't match Intel's cash flow and spending power.

One thing to keep in mind however is that Intel's "cash" is usually invested in the market. It's not a mountain of money hidden under some massive mattress somewhere. So it will be interesting to see whether Intel's been whacked like millions of other investors and what toll the market madness has been taking on its cash position. Another thing to remember: these global economic stimulus packages could end up being a big shot in Intel's arm. This is a company that does better than 70 percent of its business overseas, and so many of those international stimulus packages are arguably more aggressive than what's occurring in this country.

• Money Markets Ease on Unlimited Dollars Pledge

This all comes down to guidance and commentary. The numbers, except for that gross margin figure, are secondary. If Intel meets expectations tomorrow, it'll mean 6 percent earnings growth year over year. Analysts expect only 3 to 5 percent earnings growth for the company's fourth quarter. Anything better and Intel shares will be off to the races. Anything worse, and investors might want to reach for the Excedrin.

• Earnings Central

Questions?  Comments?  TechCheck@cnbc.com

Tools:

PrintEmail Del.icio.us Digg It

Next Post

Back to Main Page