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Intel Stock Continues Tumble

Posted on: Wednesday, 17 January 2007, 18:00 CST

By JORDAN ROBERTSON

SAN JOSE, Calif. - Intel Corp.'s stock tumbled more than 5 percent Wednesday on investor fears about future profits, but some analysts believe the world's largest chipmaker is undervalued and has rapidly improved its competitive stance against rival Advanced Micro Devices Inc.

In a research note on Wednesday, Citigroup analyst Glen Yeung said Intel's new chip design is expected to help the company stem share losses to much smaller AMD. Intel's shares are also poised for improvement as PC sales are expected to pick up because of demand for Microsoft Corp.'s new Vista operating system, Yeung said.

"We believe consensus estimates for Intel are too low, as they inadequately reflect the potential for Intel to improve operating margins via expense controls," Yeung said. Citigroup has a "Buy" rating on Intel's stock and a target price of $26.

Shares of Intel fell $1.26, or 5.65 percent, to close at $21.04 in trading Wednesday on the Nasdaq Stock Market, a day after Intel reported that fourth-quarter earnings plunged 39 percent despite selling more expensive microprocessors and starting to reverse a painful price war with Sunnyvale-based AMD.

Intel chalked up the profit decline to write-downs in its flash memory division, startup charges for its new NAND flash unit - which makes the memory chips used in portable electronic gadgets such as MP3 players and cell phones - and costs associated with its transition to a more advanced manufacturing technology.

The company is also continuing to pay for a massive restructuring and other streamlining efforts.

The overhaul, announced in September, called for the elimination of 10,500 positions, or about 10 percent of Intel's work force, and is expected to save the company $3 billion per year by 2008.

Intel finished the year with 94,100 workers, compared with some 102,500 employees in the second quarter before the restructuring was announced. Restructuring-related charges decreased earnings by about 1.5 cents per share in the quarter, Intel said.

Though Intel sold more of its expensive processors in the fourth quarter and showed positive signs of recovery from the price competition with AMD, investors seized on company's closely watched gross margin forecast.

Investors punished Intel's shares after the Santa Clara-based company said it expected gross margin for the current year to be around 50 percent, a few percentage points less than analysts were expecting.

In a research note Wednesday, American Technology Research analyst Doug Freedman said investors didn't receive the official confirmation they were looking for from Intel about an end to the price war with AMD.

However, Freedman said his firm was maintaining its "Buy" rating and $26 target price on Intel's stock on the belief that management's guidance will prove "conservative" and that Vista demand will lift PC sales and improve Intel's processor sales.

"We are willing to take an early bet on Vista and updated MS Office lifting PC unit demand and improving mix of higher end processors," Freedman said in the note.

During the quarter ended Dec. 30, Intel's net income was $1.5 billion, or 26 cents per share, versus $2.45 billion, or 40 cents per share, in the same period a year ago.

Revenue for the quarter was $9.7 billion, down 5 percent from $10.2 billion a year ago.

Excluding the effects of share-based compensation, Intel said it earned $1.7 billion, or 30 cents per share, beating analysts' estimates.

Analysts were expecting the company to earn 25 cents per share on $9.44 billion in revenue for the quarter, according to a survey by Thomson Financial.

For the year, Intel said revenue was $35.4 billion, and it earned $5 billion, or 86 cents per share.

Intel said it expected revenue for the first quarter of 2007 to be from $8.7 billion to $9.3 billion.

AMD is scheduled to report its own fourth-quarter and full-year 2006 financial results next week, and the company has already warned that plunging computer-chip prices hacked into its quarterly profit.

The company has said it expects operating income to be "positive but substantially lower" than in the third quarter because of falling prices for microprocessors, which act as the core calculating engines in computers. AMD said total unit sales were up, but were offset by the falling prices.

AMD reports after the bell on Tuesday, Jan. 23.

Source: Associated Press/AP Online

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