Shares of Intel (INTC) are down $1.52, or almost 7%, at $21.16 after the company yesterday reported Q4 revenue that was in line with analysts’ estimates, beat on the bottom line by a few pennies, and offered an outlook for this quarter and the year that was slightly less than expected.
The stock had originally risen a bit in after-hours trading following the report, only to reverse course later in the evening.
On a conference call following the report, CEO Paul Otellini, who is retiring in May, was peppered with questions about why the company is planning to lay out�$13 billion in capital investment this year, up from $11 billion last year, even as sales of so-called “ultrabook” laptop computers have not met expectations, and as sales of hybrid PC and tablet computer devices face an uncertain future.
Otellini responded by telling analysts that the company is “branch predicting” — microprocessor jargon for when a chip ventures a guess about the next event in a computer program — by making a bet that hybrid devices and ultrabooks will ultimately meet with success, justifying Intel’s investment in technology. The most advanced semiconductor process capabilities are Intel’s “single most important asset,” he reminded analysts.
The notes today are mostly taking a wait and see attitude, despite what analysts characterized as a respectable Q4 report:
David Wong, Wells Fargo: Reiterates an Outperform rating and a $28 to $33 valuation range, while adjusting his revenue estimate this year to $56.3 billion from a prior $57.1 billion but keeping his EPS estimate of $2.10. “We think that Intel’s gross margin performance and guidance was positive with Intel reporting 58% gross margin for the December quarter, guiding for the same in the March quarter and guiding for full year 2013 gross margin of 60%. Although Intel’s 2013 revenue guidance for a low single digit percent revenue increase is roughly in line with consensus expectations we think this number is lower than what Intel will actually achieve. Intel�s 2013 capital spending expectation of $13 billion includes about $2 billion in early stage 450mm development. We think it is appropriate for Intel to invest early in long term projects such as 450nm and ensure that its capex budget is sufficient for smooth execution of its near-term technology roadmap.”
Ross Seymore, Deutsche Bank: Reiterates a Buy rating but cuts his price target to $26 from $28, after revising down his 2013 esimtate to $54.98 billion in revenue and $2.13 per share in profit from a prior $57.07 billion and $2.25. “Intel delivered 4Q12 results largely in-line with guidance and expects 1Q13 to return to normal seasonality, in-line with expectations. More positively Intel continues to see strong demand for its high-end products and saw continued growth in blended ASPs. However, INTC continues to invest heavily in fabs and R&D despite muted revenue growth and this is likely to pressure free cash flow in 2013. We expect this spending-driven headwind to keep the shares range- bound in the short-term.”
Quinn Bolton, Needham & Co.: Reiterates a Hold rating, reiterates a revenue view for this year of $54 billion, and raises his EPS estimate to $1.95 from $1.90. “Intel is keeping its foot on the gas and expects to spend $13 billion in 2013 including $2 billion on a 450mm development fab. In light of the tepid growth in the PC market, we question whether this level of cap ex will lead to higher depreciation charges and excess capacity in future years that may pressure margins. Until cap ex abates or PC market demand strengthens, we maintain our cautious stance on INTC shares.”
Bobby Burleson, Canaccord Genuity: Reiterates a Hold rating and a $20 price target, while adjusting this year’s estimate from $54.86 billion in revenue and $1.91 per share in profit to $54.4 billion and $1.94. “Intel guided essentially seasonal (a little milder than typical) despite a soft Q4, as OEMs wade cautiously into Ultrabooks. We remain HOLD rated due to Intel’s healthy capex in the face of uncertain demand.”
Ambrish Srivastava, BMO Capital Markets: Reiterates a Market Perform rating and a $21 price target, while maintaining an outlook for $53.7 billion in revenue this year but raising his EPS estimate to $1.90 from $1.80 to account for what will be higher gross profit margin than he’d been previously modeling. “While Intel had a few positives on the call, such as guiding for full-year GM of 60% (we are a touch below) and low-single-digit revenue growth (which we are also not modeling for), a few things stand out starkly in the negative column for us. (1) Capex � Intel guided 2013 capex up to $13 billion, vs. the $11 billion the company spent in 2012, and vs. the $11.5 billion that we were modeling for. (2) Negative impact on FCF. We see Intel�s FCF-sales going from a five-year median of 18.9% to 10.1% in 2013 and 13.6% in 2014, and capital intensity from 13.8% to 24% and 20% in the respective years. This is in direct contrast to the trend at Texas Instruments highlighting the difference in an analog model under transformation vs. that of Intel�s.”
Stacy Rasgon, Bernstein Research: Reiterates an Underperform rating on the shares and an $18 price target, arguing that last night’s report “makes�the short case on Intel more compelling.” Rasgon raised this year’s estimate to $53.6 billion and $1.91 from a prior $53.3 billion and $1.71. “A big capex bet requiring a 2014 ramp, as well as current-year guidance needing an above-seasonal back half, seem to be poor bets to make at the moment. Additionally, seeming confusion across revenue guidance (weak), gross margin guidance (stronger than expected) and capex (astonishingly high) will likely continue to fuel investor uncertainty about the trajectory of earnings.�We continue to worry about mix-related pricing headwinds that will likely impact the company into the back half if unit growth picks up2. Even current ASP trends (up a bit, but on lower units) are consistent with this � lower price points are needed to drive unit growth.”
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