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Paul Sakuma / AP Intel's headquarters in Santa Clara, California. |
] pre-released its worse-than-expected earnings last Wednesday there had to be a collective sigh of relief for so many tech companies looking at the same kind of thing on their books, and who didn't want to be the first to deal with the wrath of the market. Intel formally releases the rest of its earnings, along with its outlook after the bell Thursday, and that's where all attention will turn: What does Intel expect for the rest of the year? Is there any hint of an economic turnaround? Where might the company expect to see strength first?
Intel reported its preliminary fourth quarter numbers far below analyst expectations, and worse, far below the company's own guidance. Revenue hit $8.2 billion compared with Intel's own range of $8.7 billion to $9.3 billion, a 20 percent decline from the company's third quarter.
Troubling for the rest of tech: Intel blamed the short fall on weakening microprocessor demand a slowdown in PC sales globally. In fact, the Semiconductor Industry Association said global chip sales plummeted 10 percent in November from the same period a year earlier. Even more troubling: We all expected a downturn, the slowdown, and yet Intel's numbers were far worse than that, even after Intel had revised them lower. Twice.
It was the first time in five quarters that Intel missed expectations.
Incidentally, analysts are looking for Intel to report 4 cents a share in profit for its fourth quarter. Separately, Intel's dealing with some turmoil on its board of directors, thanks to Yahoo: [YHOO
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] board member Sue Decker resigned her post as Yahoo president yesterday; board member Carol Bartz took over as Yahoo CEO yesterday. So it would seem one exec now has a lot more time to devote to Intel while the other will likely have a lot less.
So that's the bad news.
The good news, and not to be a Pollyanna here, is that longer term, there's probably no other technology company that owns the market in which it competes the way Intel does, especially a market of this size.
Longer term, I can' t find a single analyst who doesn't look to Intel as a stable, solid growth story once the economy begins to turn around. That doesn't mean the company's first quarter guidance will offer the first real signs of a turnaround, but it does mean that toward the latter half of this year and into 2010, Intel is positioned amazingly well. The company is still enjoying the dividends from deep cuts it made a couple of years ago to streamline operations and prepare itself for a downturn.
Still, Intel shares have plunged during the last quarter of 2008, going from $22 in September to $12 just before Thanksgiving, and off a total of 21 percent during the quarter. Despite that weakness, Intel is still a bellwether stock in tech, and the outlook it offers will undoubtedly affect customer shares like Hewlett-Packard [HPQ
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] , Dell [DELL
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] , Microsoft [MSFT
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] and Apple [AAPL
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].
Morningstar analyst Andy Ng advised clients that "The semiconductor industry is notoriously cyclical, but Intel remains well positioned to weather the slowdown." Pacific Crest Securities' Michael McConnell lowered 2009 gross margin estimates to 49 percent from 50 percent, citing the company's unscheduled desktop and server CPU price cuts coming Jan. 18. He suggests that AMD's [AMD
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] server CPU share gain at HP might be a reason for the price cuts, along with excess inventory coming out of the fourth quarter.
The last time Intel offered guidance, it was almost meaningless.
Investors could drive a truck through the enormous range the company provided. And even after that, Intel was forced to make revisions twice because the business slowdown was so much more wrenching than anyone could've imagined. Look for the company to address that issue on its conference call. Which means, tone and tea leaves will be more important than numbers, for a change, at least in regards to guidance.
However, investors who can look past the immediate -- 2009 -- turmoil and volatility may be handsomely rewarded, with or without Thursday's numbers.
Questions? Comments?
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