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Intel’s back -- but for how long?
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December 4, 2001: 4:48 p.m. ET
Its outlook is brightening and its shares are on fire. But the king of the chipmakers has a lot to answer for when it speaks to analysts on Thursday.
By Adam Lashinsky
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SAN FRANCISCO (CNN/Money) - 'Tis the season for...mid-quarter updates from the land's biggest technology companies. Cisco Systems CFO Larry Carter chats with investors Tuesday afternoon as part of the networking giant's two-day analyst conference, and Sun Microsystems weighs in with a regularly-scheduled teleconference on Thursday afternoon. As soon as Sun stops yapping comes Intel, likely to be the most anticipated update of them all.
Wall Street expects modestly cheerful news from Intel, with perhaps a positive tweak to the fourth-quarter revenue estimate of $6.2 billion to $6.8 billion. The problem facing investors is whether any good cheer is priced into the stock. As of Tuesday's closing price of $32.84, Intel's shares are up 70 percent from their low of $19.30 on Sept. 21. The Philadelphia Semiconductor Index and the Nasdaq composite have gained 41 percent and 36 percent respectively in the same timeframe, showing just how fast and far Intel's shares have come.
Moreover, there's likely more bad news on the horizon than good. On a recent trip to Asia, Robertson Stephens analyst Eric Rothdeutsch found that production of motherboards -- the nerve centers of computers -- is falling. That suggests that PC sales, which have been rebounding, will begin to peter out after the holiday season. And though Intel may be trying to diversify its business, it counts on PC sales for a huge chunk of its revenue.
Even Intel (INTC: up $0.82 to $32.86, Research, Estimates) bulls are temperate in their enthusiasm. Based on historical comparisons of Intel's earnings growth rate relative to the companies in the S&P 500 index, Thomas Thornhill of UBS Warburg suggests that Intel's shares could hit $36 in 12 months -- not a lot of upside for investors who are late to the Intel rebound party.
As far as its stock price goes, Intel has taken matters into its own hands. During the third quarter alone, the company bought back $1 billion worth of stock at an average price of $28.65. Share buybacks have the effect of diminishing supply and propping up the price. Intel says it has authority to purchase up to another 328 million shares.
While the near-term isn't particularly promising, there's at least one reason for long-term optimism. Intel said last year that it would spend $7.5 billion on capital improvements, primarily to upgrade its chipmaking capabilities. Critics -- this columnist included -- suggested Intel was trying to frighten its competitors into spending their way to losses and that Intel ultimately would cut back its spending.
The critics were wrong. As of Oct. 16, when Intel reported third-quarter earnings, the $7.5-billion projection was intact. Even if Intel were to lower this guidance Thursday, the company still will have invested heavily in its future.
It's worth noting, however, that the company's cash hoard is shrinking, from $13.5 billion at the end of 2000 to $9.1 billion at the end of the third quarter. Even Intel can't keep spending forever. 
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