Intel's Warning Overblown—Shares Oversold


Intel'sthird quarter 10-Q seems dire enough, unless of course you understand the company's business and follow the comments it has consistently been making since it reported its earnings a couple of weeks ago.

And if you do, you would find yourself shrugging off these latest comments rather than wringing your hands over them. But in this sell first, ask questions later climate on Wall Street, context and consistency don't seem to make any difference.

Wire reports and some analyst comments pointed to the Intel filing as a "warning," worried that the company fears the credit crisis could hurt demand for its chips and drive some of its suppliers and customers into bankruptcy. Intel shares took a big hit on the news. Or at least the way the "news" was covered.

Remember that when Intel released earnings, it offered an uncharacteristically large, revenue guidance spread because visibility into the fourth quarter was just too muddled. "Guidance you could drive a truck through," one Intel insider tells me today. It pointed to economic concerns as the main reason why and wanted to offer a broad range simply because it was being prudent, didn't want to over sell or under sell expectations, and would offer up a narrower range when it comes time for Intel's mid-quarter update. Reasonable. Prudent.

The company is offering no new specifics in its Q. No revised numbers downward. It is only re-iterating what it has already said: "Current uncertainty in global economic conditions poses a risk to the overall economy as consumers and businesses may defer purchases in response to tighter credit and negative financial news, which could negatively affect product demand and other related matters." Reuters, for one, points out that these worrisome comments were not included in the company's second quarter report.

But these parameters WERE addressed in its most recent earnings report, again on the conference call with analysts and reporters, and with me specifically when I interviewed CFO Stacy Smith just after those numbers were released. And all of this was addressed earlier this month by CEO Paul Otellini who, on the one hand, acknowledged the ongoing economic uncertainty, but on the other said that the company sees no changes in its ongoing capex and investments over the next year. Nothing new. Nothing different.

Said Otellini just three days ago: "I did not foresee the economic downturn, but the fact that we did restructure ahead of that put us in a very good position to be able to weather this storm and not change our investment profile." Remember that the company slashed 10,000 jobs between 2006 and last year that saved the company up to $3 billion annually.

Read the filing: Intel reassures readers that inventory levels are currently "appropriate," but that economic uncertainty could lead to a write-down of the excess. And that could hurt gross margins. Well, duh. The company isn't saying that's likely. Or probable. It's just alerting investors that they could be there. Again. Which is what it's supposed to do.

Bottom line is that Intel isn't seeing anything new; just reminding all of us that there are still issues out there. As if we needed reminding. Silver lining alert: By not seeing anything new, even as the quarter continues to progress, that's actually good news for the company and its investors. One Intel source tells me this morning: "Hey, business looks good. We're just being careful."

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