Wednesday, April 16, 2008

Psychology of the Intel Inc (INTC) Q1 2008 Call

Most recent notable analyst rating changes for INTC:
April 10th, Banc of America upgraded from neutral to buy.
April 9th, Wedbush Morgan initiated coverage with a buy.
January 4th, JP Morgan downgraded from overweight to neutral.
Note: On 2nd January, 3 months and 8 days prior to their buy recommendation, Banc of America, downgraded INTC shares from buy to neutral. We'll pay close attention to the questions posed by all of these analysts, and the answers that they receive, but especially those asked by Banc of America as they have exhibited the most frequent change in opinion. Perhaps their analyst is doing the most aggressive in depth analysis of Intel Inc as shares are up nearly 7% post report.

We know you'll love the Psychology of this blue chip Call, if you're long that is~

The CC started at 5:32 PM ET with Kevin Vice President of Investor Relations; he mentioned that CEO Paul and CFO Stacy would be on the CC as well. Kevin read the safe harbor statement.

CEO Paul at 1 minute (1m) delivered the general results.
2m inventory healthy and in balance; server business all time record revenues, particularly in North America; quad core shipments continued to grow, Paul's non-flinching delivery reinforced the better than anticipated numbers.
5m assure shareholders that we entered this business to make money, very powerfully worded statement directly to investors; we like that a lot.
6m Trends: 1) core business superb, 2) control of cost structure, and 3) product development strong (delivery and tone were was very powerful/reassuring)
7m CFO Stacy delivered the detailed results outlined in the public press release. His tone was upbeat and optimistic, non-flinching like Paul's.
10m sales growth strength in America mentioned again.
11m number employees down by 1,700.
13m $13.26B cash at end of quarter; cash flow from operations over $2B
13m outlook for 2nd quarter given: revenue between $9B-$9.6B and other details offered.

Q/A began at 18m
Deutsche Bank analyst Ross Q: Demand environment in general, please give color/linearity A: Quarter came in as expected, nothing unusual, normal.
Follow up Q: Competitor average selling prices (ASP) A: Flat, pricing environment is what we've seen, benefiting from strength of product line up.
Follow up Q: Capital expenditures (CAPEX) A: On track for CAPEX, we see no change to previous forecast.
19m Merrill Lynch analyst Q: Will we see a surprise in memory (NOR) or NAND business? A: Don't expect anything significant going forward, pricing environment continues to be weak
Q: Share from AMD server market or notebooks or desk tops A: Strong on server segment, record server revenues, mobile was strong, desk top to notebook transition happening ahead of forecast
23m Banc of America Q: Macro economic issues, financial industry A: 74% of revs are not in U.S., Manhattan (Wall Street) effect not impacting us. (MUST LISTEN TO), extremely reassuring/confident tone.
Follow up Q: 1,700 employee reduction issue A: NOR (memory) divestiture incorporated in yearly forecast.
Follow up Q: Tax rate A: Higher proportion of revenue in higher tax jurisdictions, so raised in the current quarter, likely to move to lower tax in 2009
27m Glen from Citi Q: Clarify macro environment, especially Europe A: We had a very good Q4 in Europe, and very good Q1 in America. In Europe just 2 weeks ago and did not see any slow downs. Q1 saw growth in every geographic region VERY POSITIVE DELIVERY.
Follow up Q: Unit costs, and 45 nanometer mix A: We're not seeing weakness in the 2nd quarter, 45 nanometer at very healthy inventory level.
30m ramp curve moving very quickly, very reaffirming tone witnessed by the Psychology of the call team.
31m UBS analyst Q: Surprised on comments of North American strength, if Manhattan financial fallout isn't the issue, where is the strength coming from? A: Those questions are best answered by HPQ, DELL, and IBM when they report, I take issue with your assertion, (Incredibly in your face conference call, the guts of management was that of a Navy Seal, fantastic to hear such confidence and straight forwardness). A: 34m Atom based net book sales unknown, awfully good margins, but we feel it'll be net accretive.
34m John from Credit Suisse Q: Market share gains or product mix is a better driver in your opinion A: I think it's probably both, one of the things is the growth of the large Internet data centers, they're growth is really quite large for "cloud computing"(AMZN GOOG).
Follow up Q on revenue growth A: New markets are the driver.
Follow up Q: Gross margins A: We see continued over supply in NAND market, we do see pricing and costs come down, so gross margin neutral. Our gigabit production doubled, so those are net positive for us.
38m Jim Goldman Q: Quantify NAND A: We won't break it out, it'll be gross margin neutral.
Follow up Q: What is helping back half of '08? A: Growth in core business is strong.
Follow up Q: Sounds like product differentiation is creating problems for your competitors A: You'll have to ask them that question, we drive "dynamism" in the market. That has been the Intel's CEO job for two decades, don't see that changing (more chest pounding).
42m Chris JP Morgan Q: Utilization rates A: Pretty much the same as we showed at our analyst meeting a month back.
Follow up Q: Buy back A: Can't comment on that specifically, but will follow the Board’s recommendations.
Follow up Q to Paul, no trouble witnessed from Asia or Europe A: No end!
42m Lehman analyst Tim Luke Q: Server operating margin color A: Price of success of mobile business is reflected, one year ahead of schedule
Q: Note books ASP color. A: Emerging markets affecting ASPs, but offset positively by server business.
Note to readers: Tim Luke asked at least 2 questions we missed, but you would be wise to read his opinion in the future, an extremely patient analyst who prodded for answers incredibly well.
48m Q Raymond James, NAND regarding Micron A: I really don't think it's appropriate to discuss/comment on that, (transparent answer given though), NOR raised similar questions one year ago and we couldn't answer it because we were in the middle of an auction.
49m John from Cowen and Co Q: Anything changed A: Too soon to call that, early sales of net books have been in China, it's like early days of Apple iPod, we see emerging market growth of these net books, HP Via mentioned, we are in a very good position to take advantage of our position.
52m analyst Joan Q: Spending, restructuring budget A: Our long term goals haven't changed, they are the same as I told you a month ago.
Follow up Q: 53m has INTC become more nimble A: No question we have become more nimble and efficient, we will continue this focus, incredible competitive tool for us.
54m Doug from Amtech Q: Impact of Euro and other currencies, any benefits A: Weaker dollar is increasing our costs, but that translates to increased sales because technology sold in dollars in more attractive
55m Q: commodities market. A: The same as we see on the macro economic business, we see costs coming down q/q/q Q: Success in Atom happening and gross margins, how quickly will Atom processors ramp? A: Too early to call, but we're excited about level of interest in Atom
57m John from Jeffries Q: Underlying dynamics in emerging markets A: Most of growth in the next 5 years will be in non U.S., Apple product line growth mentioned A: The unknown dynamic is what happens when these $200-$300 "net books" are released in India and China and Indonesia; as dollar weakens against most currencies, the amount of money needed to buy a PC relative to local disposable income is less and less, so we're seeing PC penetration move rapidly than in previous years. That's why we pointed a growth forecast of low double digits in terms of units this year.

CC ended at 59m

If this was a baseball game with the slaughter rule in effect, Intel won. The call was the MOST UPBEAT TECH CALL we've been on in YEARS, considering the soft macro cloud everyone other than Intel seems to be seeing. Please recall the phrase we stress over and over; this conference call is a perfect time to use it: It is NOT a "stock market" as many would lead you to believe, it is a "market of stocks". And Intel is one stock to not miss.
So, IF the overall market remains weak or pulls back due to other micro or macro factors over the next few days, we strongly recommend buying shares on dips. Unless we learn or hear a change in tone or behavior from management, you'd be wise to buy this incredibly well managed company, we reiterate incredibly well managed.

Management was very transparent and extremely optimistic; we reiterate a "chest pounding" call at many points, especially at: 23m, Intel said "Manhattan effect" is not affecting their business, at 27m no slow down in Europe seen after just being there recently, 31m, smack down of HPQ and DELL and IBM was effective, 49m the mention of the Apple i-Pod convinced us Intel's management is on the right track, angry and aware at the under performance of share price, 57m the "unknown dynamic" mentioned $200-$300 net books in China and India and Singapore was beyond exciting for bulls...

Hats off to Banc of America analyst for doing his homework and upgrading on April 8th. That showed courage, intelligence, and conviction. Lehman analyst Tim Luke was the most thorough and impressive.

Our team has NEVER left a conference call this impressed. We’re willing to put our necks on the line for our trusted readers and predict that Intel shares break $30 by the New Year, barring any unforeseen shocks/events (Commandment #10.) A better than 40% return from a blue chip monster like Intel should be music to your ears: it sure was to ours. The Psychology of this blue chip Call mattered, thank you once again. And for increased Corporate transparency, please oblige:

1 comment:

Anonymous said...

You hit it on the head, Intel's "chest pounding" was so clear. Best of Luck, keep up the efforts!