Market reacts to Intel’s early 4Q downgrade

Nov. 13, 2008 – Intel’s revelation that its 4Q08 sales will be about 12% below expectations (~$9B ±$300M, instead of $10.1B-$10.9B) probably wasn’t too much of a surprise given downgrades everywhere else, and mounting evidence of a slow consumer market particularly for PCs.

In a terse note, Intel said it’s seeing weak demand “in all geographies and market segments,” and PC suppliers are “aggressively reducing component inventories.” Gross margins are seen to be 55%, not 59% as previously projected; spending (R&D plus MG&A) will be about $2.8B, vs. $2.9B.

The downgrade was a surprise to some, given its width (“everywhere”) and magnitude (>$2B). “It’s so far below what they had expected … The company had outlined weakness in enterprise but not the consumer yet,” noted Charter Equity Research analyst John Dryden, cited by mutual fund site Trader Mark. Still, Intel’s a bellwether stock, so any eyebrow-raising numbers like this will cause waves..

Others aren’t so surprised, noting that many analysts were already sharpening their knives on both Intel and AMD amid sluggish PC demand, and also since Intel had warned two weeks ago of possible weak demand due to the credit crisis. “We believe guidance is realistic rather than conservative,” writes Doug Freedman of AmTech Research in a research note. He’s maintaining his “Neutral” rating on the stock, but is reducing his share target to $12.50 with the same 15× multiple to 2009 estimates (to $0.82 from $1.29). “We believe all Street estimates of this highly covered bellwether need to be adequately lowered,” he writes.


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