Hey Intel, wake me up when it's July
In this lousy economy, the chipmaker won't give an official sales forecast. It's going to be a long, cold winter.
SAN FRANCISCO (Fortune) -- Intel did what it said it would do: post a miserable fourth quarter. But with the chip industry in a major slump, that kind of candor doesn't extend to the first part of this year.
"Due to economic uncertainty and limited visibility, Intel is not providing a revenue outlook at this time," the chipmaker said in a statement with its Thursday earnings release. "For internal purposes, the company is currently planning for revenue in the vicinity of $7 billion." Net revenue in the first quarter of 2008 was about $9.7 billion.
Fourth-quarter net income dropped a stunning 90% to $234 million compared with a year ago and fell 88% from last quarter (Translation: the chip industry fell off a cliff in the fourth quarter).
But since the world's largest semiconductor maker telegraphed the coming bad news just over a week ago, the market was ready. Shares of Intel (INTC, Fortune 500) actually ticked up 4% in after-hours trading Thursday and then added another 1% on Friday.
So, no official outlook, but here's a revenue ballpark we're kicking around in Santa Clara. Whatever the actual number comes in at, it will be low, and the question Intel execs and its investors ought to be asking themselves is when are we going to see the absolute trough in the semiconductor industry and by extension technology.
Intel is a barometer for consumer and business tech spending, so as its fortunes go, so do much of the tech world's. Chip companies, including Intel, Nvidia (NVDA), Advanced Micro Devices (AMD, Fortune 500) and others tend to get beaten down early in recession, but historically have led the way out.
Most guesses, and they are just that, are that things start to improve for Intel in the second half of 2009. So by summer we should be seeing an upward trend. The consensus among analysts is that Intel's revenue drops sequentially until the third quarter, and doesn't begin to beat last year's revenue numbers until the final quarter of the year - but just.
The advantage Intel has over its competition in these impenetrable economic times is scale. Because it controls about 75% of the market for processors in PCs, servers and workstations, means Intel is a comparatively stable stock (unlike its volatile peers in the chip business).
You can expect Intel's share price to bump along in a fairly tight range for the next quarter or two, until visibility returns and the company can make some definite projections. At $13 it's close to 52-week lows, but what isn't. With 2009 P/E estimates in the range of 20 to 25 it's not cheap, though within historic averages.
Looking out to his projected 2010 multiple, Intel at 35 times projected earnings seems a bit ahead of itself, says Rick Schafer, semiconductor analyst with Oppenheimer, who has a "perform" rating on the stock. In the past, you could play Intel by looking for the low-point in margins and buying then, says Schafer, but he's not convinced that works in this environment.
"The good news is that we think margins will trough in the first quarter, but I am not convinced that the first quarter is going to be the revenue trough," he says. "Demand is still shaky, Intel said as much. We need to see some level of order stabilization before we can talk about any recovery."
Needham analyst Y. Edwin Mok summed it up this way after Intel's earnings: "We are concerned that channel inventory correction could drag out and demand could further deteriorate, preventing any recovery," he said. Mok, who has a "hold" on the stock, wrote in a note to investors. "We would wait for signs of stabilization of demand before getting interested in the stock."
That of course, applies to all semiconductor companies. If you have to run out and invest in a chip company today, Intel is your best bet. But there's no hurry. The chipmaker as much as made that clear. Things are not going to the upside anytime soon. So wrap up against the cold, and get ready for a better summer. 
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