Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Intel has always invested heavily into this industry. This industry without Intel investment will not be at a point where it is.
So far this has not failed Intel and it will not fail this time.
Intel has enough data to support their investment which we all investors don't have.
These are not easy decision to make. There is a lot more which goes into this process.
Goldman raises its ugly head again
----------
Goldman Sachs maintained a Sell rating on Intel (NASDAQ: INTC) with a price target of $16.00. In addition to concerns about excess supply, analyst James Covello thinks a rise in depreciation creates long term margin risk.
"Given our view that Intel's stock price is highly correlated to gross margin, we see downside risk for the shares," said Covello.
"While much of the recent discussion regarding Intel's gross margin has centered around declining ASPs and mix shift, we believe investors also need to consider Intel s rising depreciation expense. We expect Intel's depreciation expense will continue to rise over the next several years as Intel's capex has increased to $10-$11 bn per year since 2011, yet we forecast depreciation will only be about $6.9 bn in 2013. We estimate the future increase in depreciation expense will be an incremental 200-600 bp headwind to Intel's gross margin," he added.
He already admitted his error. I think you are brilliant beyond comprehension by bring up again.
I was going to say the same thing. You are selling puts and not covered calls or naked calls.
This compares very well to Nexus 10 and one from Samsung.
I also comes or will come in 7" model.
Things will be becoming very interesting really soon.
I thought Andy and you wanted to buy stocks below $22.00. Grab the opportunity and do something.
Intel got more than what it paid for Infineon. That is why Intel recently bought Fujitsue LTE product group to accelerate this integration process.
I stated the same thing. Intel will wait before integrating with processor once it is absolute certain that LTE piece is ideal for the situation. In the meantime Intel will have to offer the solution at competitive price to stay in the game. Current product is shipping now or will be shortly and not in 2014.
I would not be surprised if at IDF, Intel announces some wins.
I guess we disagree. I see glass half full and you see it differently. There is no one else out there who has a LTE solution except off course Qualcom which is no doubt a dominant player.
Intel has to start some where. As far as I am concerned it is a big step.
I never said Qualcom does not have integrated LTE solution but it is only supplier. Intel will be the second.
I agree with you 100%. I am glad Intel has Lenova as its partner in China.
It is growing both in PC/convertible/phone. I saw recently an interview on CNBC and was quite impressed with its US president.
It will start selling its phone K900 in India and mid east.
Once that happens you will see more and more OEMs following Lenova lead. That is how I feel.
With today's announcement of LTE solution shipping to customers, things will change very quickly.
I don't think so. INtel will do integration when it is right to do.
Only Qualcom has LTE solution and no other suppliers has that solution. It wants to integrate once XM7160 is proven by all networks. Today it is certified by Verizon and ATT. Please read the article carefully.
With second multimode LTE solution, you might get that
I just added it. I am going to see how it effects performance.
Thanks.
That is true. But apple has a better brand recognition relative to Acer. It will be tough sell.
Quality of material used in Acer is also top class. No arguments.
Lower price point will have lower SSD, lower resolution, plastic material etc. Yes, it will offer options to customers.
These look very good. But the price is very steep especially relative to Apple. I have a feeling that these will not sell at these prices. These should be priced around 10% cheaper than Apple products.
It is good to see a lots of Ultrabooks with Haswell processors though. Hopefully with time these will come down in price.
Not a positive article. Quite negative on Intel and PC related stocks. I have highlighted the last paragraph.
--------------------
Chips: Wells, Benchmark Hopeful; More Pain in PCs, Says JP Morgan
By Tiernan Ray
A slew of sell-side folks today offered up their latest views on the health of the semiconductor industry as it contends with a still declining PC market, but sees some pick-up from the networking equipment field.
A couple of bulls made the case that despite mixed data out of the Asian electronics supply chain, things can improve in this second half of the year.
Wells Fargo chip analyst David Wong notes PC original design manufacturer results still indicate a PC market in steep decline:
Month of July sales for our Taiwanese notebook ODM aggregate (Quanta, Compal, Wistron and Inventec) decreased 4% month over month. The year-overyear comparison improved slightly to a decline of 9% from a 13% decline in the month of June, but this still represents a substantial drop in absolute terms. Pegatron apparently expects its notebook unit shipments to drop 5-10% in the September quarter but Asustek expects its notebook shipments to rise about 5%.
Moreover, inventory replenishment is still happening in semis, he writes:
Last week we issued our Electronics Inventory Review. For the most part, days of inventory moved sideways sequentially in the June quarter through the electronics supply chain. Absolute inventory rose in many segments, consistent with rising demand. We think this latest data helps establish that the inventory correction that occurred in the second half of 2012 has ended, and that there may well be an ongoing need for inventory replenishment in the electronics supply chain through the next several quarters.
The Benchmark Company’s Gary Mobley maintains a favorable outlook on the chip industry, despite also seeing continued declines in activity by the electronics supply chain:
Sales Comparison for Taiwanese ODMs/Electronics Manufacturers; Indication of Healthy (albeit decelerating) Sales for Taiwanese Electronics Supply Chain – All of the 32 Taiwanese ODMs/electronics manufacturers we track have reported July sales figures. July sales for the ODM/electronics manufacturers we track recorded a 1% m/m decrease in sales, following a 1% m/m drop in June and a 5% m/m increase in May. Normally, July sales increase mid-single-digit-% m/m (see figure 6). On a y/y basis, July sales increased 4% versus a 5% y/y increase in June and an 8% y/y increase for May (and 3% y/y decrease for 1Q13). It is obvious the production of electronics goods in Taiwan remains healthy, albeit decelerating, as evident in the y/y growth comparisons. If history serves as a guide, m/m sales comparisons should turn positive from August through October [...] Notebook ODMs Compal, Wistron, Inventec and Quanta reported a 4% m/m decrease in July sales (down 5% y/y). Taiwan-based ODM Wistron shipped 1.65 million notebooks in July, the lowest monthly level so far in 2013, according to the company. It is obvious the launch of Windows 8 has had a negative impact on PC sales, and accordingly, even Microsoft (MSFT) has admitted to the shortcomings and misdirection of the new OS. On a y/y basis, notebook ODMs reported a 10% y/y decrease in June sales. If it were not for these ODMs diversifying business to include tablet production, the companies would have a posted an even larger y/y decline in 2Q13 and July sales. According to IDC, PC unit sales declined 11% during 2Q13 (vs. 14% y/y decline in 1Q13), and total PC unit sales should decline 5%-10% during 2013 with tablet unit sales increasing 70% during the year [...] For the 20 Taiwanese chip companies and chip distributors we track, July sales increased 9% m/m (up 6% y/y). The y/y growth rate is in line with the broader chip industry, which grew 7% y/y on a rolling-3-month basis during June. Dedicated foundries TSMC [Taiwan Semiconductor Manufacturing (TSM)] and UMC are seeing decelerating trends in July sales following an exceptionally robust 1H CY13. It is evident that 1H CY13 was all about fabless chip companies preparing for a stronger 2Q13 (which came to fruition) and a seasonally stronger 2H CY13.
As for the bear case, J.P. Morgan’s Christopher Danely writes today, after reviewing reviewing recent chip company earnings reports, writes,
We believe the upside surprises were at companies with margin leverage and high exposure to the industrial/comm./auto end markets such as Xilinx, Texas Instruments and Microchip, while the downside was from companies with high exposure to the PC/handset end markets such as Fairchild, Maxim and RFMD.
As a result, Xilinx (XLNX) is his top stock pick, while he expects further pain for PC-related names:
Multiple companies across the handset supply chain including Samsung, HTC, Spreadtrum, and TPK have commented on slowing phone sales, while J.P Morgan’s Asia research team stated that China’s smartphone inventory remains elevated following carrier subsidy cuts. In addition, Intel has guided for double-digit revenue growth in 2H13 despite PC demand softness. As a result, we believe there could be further downside to Consensus estimates for Intel, Maxim [Integrated Products (MXIM), Fairchild [Semiconductor (FCS)], and [RF Micro Devices (RFMD)] RFMD.
I was not able to post the picture. It looks very impressive except the price. May be for two items it is not bad.
-------------------
Split X2 with slide off tablet
Gallery
HP recommends Windows.
Intel (R) Inside(TM) Core i3 Intel (R) Inside(TM) Core i5
The notebook you need becomes the tablet you want.
Starting at
$749.99
13.3" Windows Detachable
You can believe what you want to. You can also ignore facts at your own peril.
Agreed. IBM is desperate. There were rumors that it wants to sell its server business(x-86) to Lenova.
Here is the news by IBM for Power processor. What else IBM could do with this group. Its revenue has been declining big time for some time now.
---------------------
Aug 6 (Reuters) - Technology services provider IBM is teaming up with Google and a handful of other tech companies to license IBM's Power chip technology, in an effort to attract more users.
Under the alliance called OpenPower Consortium, IBM and Google - along with Israel's chip designer Mellanox Technologies , U.S. chip-maker Nvidia Corp and Taiwan-based server supplier Tyan Computer Corp - will build server, networking and storage technology based on the chips for cloud data centers.
The hardware and software, previously proprietary to IBM, will be available to open development and it will be licensable to others, IBM said in a statement.
The alliance is open to any company that wants to participate and innovate on the platform, IBM said.
IBM competes with Intel Corp and ARM Holdings' chips, which dominate the market.
Revenue from IBM Power Systems was down 25 percent in the second quarter compared with the previous year.
Did you recently see Intel's presentation on servers? Intel clearly stated that it was making customs chips for Facebook, Ebay and others.
Intel is not down today as much as you think. It is an ex dividend day.
That is great. Good news will start trickling soon and hopefully it will increase the stock price.
Reading between the lines, Intel still does not have enough design wins especially from top tiers players. It is still looking for big customers.
Yes. No problem. I thought it could be Oct. after I already posted.
I wish I could get $0.80 for Sept. 23 calls. It is only $0.60.
I do the same. I do look for in the range of 1.5%-2% per month.
It is not only Apple. It is Samsung and it is HTC. These are 3 top players in Smart phone category.
From day 1 to me it appeared as a fashion statement.
Intel entry into phone market is going to be very hard especially in US.
http://www.bloomberg.com/news/2013-07-21/high-end-smartphone-boom-ending-as-price-drop-hits-apple.html
------------------------------
High-End Smartphone Boom Ending as Price Drop Hits Apple
By Peter Burrows - Jul 21, 2013 9:21 AM PT
The smartphone has crossed the line from shiny new technology to ubiquitous commodity.
App-laden, Web-surfing phones have surged in popularity over the past half-decade and generated $293.9 billion in sales last year alone. They are now used by more than 1 billion people around the world. With more than half of mobile users in the U.S. and developed countries owning a smartphone, and consumers in emerging markets including China and India gravitating toward cheaper models, demand is slowing for high-end devices.
The average price of a smartphone has plunged to $375 from $450 since the beginning of 2012, IDC estimates. That drop has already threatened revenue growth and profit margins at Apple Inc. (AAPL) and Samsung Electronics Co. (005930), and could further squeeze companies like Nokia Oyj (NOK1V) and BlackBerry that were counting on new products to revive sales. Beneficiaries include up-and-comers, such as Huawei Technologies Co. and Lenovo Group Ltd. (992), which specialize in low-priced gear.
“The days of great growth in the high end of the market are gone,” said Michael Morgan, an analyst at ABI Research. “It’s the Chinese companies who know how to survive on tiny margins that are ready for the fight that’s about to ensue.”
The decline in average smartphone prices is akin to what happened in the personal-computer industry in the late 1990s, according to former EMachines Inc. Chief Executive Officer Stephen Dukker. Back then, millions of people who wanted to get online for the first time snapped up cheap new PCs from EMachines and other low-cost providers, dragging down once-stable PC prices to $1,026 in 2002 from $1,898 in 1996, according to IDC.
Feeling Pinch
Apple, Samsung and other companies relying on sales of expensive phones are already feeling the pinch. In June, Samsung lost more than $25 billion in market capitalization, greater than the value of Sony Corp. (6758), as analysts trimmed projections for Samsung’s high-end Galaxy S4 smartphone, which costs $200 when sold as part of a two-year wireless package, or about $630 without a carrier subsidy.
“The market is becoming less about speeds and feeds, and more about price,” said Kevin Restivo, an analyst at IDC in Toronto. “More people don’t need to be overwhelmed by a phone, so long as it’s good enough.”
HTC Corp. (2498), Taiwan’s largest smartphone maker, missed analysts’ sales and profit estimates for its second quarter amid disappointing sales of its HTC One handset, which costs $200 with a package, or $600 to $700 without one. On July 12, carriers cut the price of BlackBerry (BBRY)’s poor-selling Z10 to $50 from $200 -- just six months after it was introduced.
IPhone Estimates
Apple, based in Cupertino, California, is predicted to report on July 23 that fiscal third-quarter revenue was little changed from a year earlier, based on the average of analysts’ estimates compiled by Bloomberg, mainly because of slowing iPhone sales. That would be the worst sales performance since 2003’s second quarter, when revenue declined 1.3 percent.
T. Michael Walkley, an analyst at Canaccord Genuity Inc., last month lowered his estimate for iPhone sales for fiscal 2014 to 173 million from 181 million. Natalie Kerris, a spokeswoman for Apple, declined to comment on iPhone sales.
Falling prices and the popularity of products with lower margins such as the iPad mini are beginning to hit Apple’s profitability. While the company makes a gross margin of more than 50 percent on the iPhone 5, sold for more than $600 to carriers, it has sold millions of older models in recent years at lower prices at a gross margin of 35 percent or less, according to Brian Marshall, an analyst at ISI Group. Apple’s gross margin fell to 37.5 percent in the period that ended in March, from 47.4 percent a year earlier.
Consumers Content
Apple shares have dropped 39 percent from a record in September amid concerns of slowing iPhone growth and declining margins. They declined 1.6 percent to $424.95 on July 19.
While any innovations may slow the drop in prices -- for example, Apple, Samsung and others are working on wearable, wristwatch-like device, which could stoke sales -- most people are content with the size, shape and features of basic smartphones, ABI’s Morgan said.
Morgan predicts Apple will introduce an iPhone 5S this September that could come in different colors and feature a fingerprint reader so owners wouldn’t have to remember a security code. That won’t be enough to revive iPhone sales growth for long, he said.
Chinese Suppliers
More of those profits will be won in emerging markets, where many consumers have yet to buy their first smartphone. IDC’s Restivo predicts that 66 percent of the 384 million smartphones sold in China next year will cost less than $200, compared with 14 percent of the 153 million phones projected to be sold in the U.S.
China-based suppliers of less-expensive phones, such as Huawei, have been gaining market share, mostly by undercutting HTC, BlackBerry and Nokia on price. Even as its phones priced as low as $100 sell briskly, Huawei’s two-year-old devices unit is profitable, Shao Yang, the company’s vice president of marketing, wrote in an e-mail.
Lenovo has used the same low-price strategy that has made it the world’s largest PC maker to become the fastest-growing smartphone maker in China, said J.D. Howard, vice president of operations and business development for Lenovo’s smartphone, tablet and TV unit.
“It really works in the smartphone business, because some of our rivals have been charging a ridiculous premium,” he said.
PC History
If the history of PCs is any guide, price wars can quickly lead to industrywide carnage. In the years after cheap models such as EMachines’ $600 desktop became popular in 1998, average PC margins narrowed to less than 10 percent from more than 15 percent, not enough to cover the research and other costs at bigger companies, Dukker said.
As margins shrank and losses mounted, PC makers merged and divested the commodity business. Onetime leader Compaq Computer Corp. was acquired by Hewlett-Packard Co. (HPQ) in 2002, and International Business Machines Corp. (IBM) sold its PC business to Lenovo in 2005. Gateway Inc. purchased EMachines in 2004, only to be bought by Acer Inc. (2353) in 2007.
The two smartphone powerhouses, Apple and Samsung, are better-positioned than Compaq and IBM were in PCs. While most of its marketing in the U.S. focuses on high-end devices like the Galaxy 4S, Samsung sells hundreds of models at all price points. As one of the largest manufacturers of chips, displays and other smartphone parts, Samsung can reach lower price points more easily than rivals who must buy those components -- often from Samsung itself.
Strong Ecosystem
Apple’s strong brand and ecosystem of music, services and more than 800,000 applications should help it maintain its large customer base, according to David Yoffie, a professor at Harvard Business School.
The company has also shown it can profitably appeal to thriftier shoppers with older iPhone models. About half of the iPhones sold by Verizon Wireless in recent quarters were iPhone 4 or iPhone 4S models, which Verizon and other carriers sell for $99, or give to customers who agree to a two-year contract. More recently, Apple has helped carriers run trade-in programs that give shoppers as much as $200 in credit toward an iPhone 5 if they hand in their existing iPhone.
Without these efforts, Apple would have lost even more market share to Samsung and other makers of smartphones running Google Inc. (GOOG)’s Android software, Yoffie said.
“As growth increasingly comes from emerging markets, Apple is not going hold share,” Yoffie said. “An evolution in strategy is definitely necessary. They can’t stay where they are.”
I was repeating what Intel management stated in con. call.
Intel is going to produce 14nm parts at the end of this year. There is no way TSMC and or Global Foundries will have 14nm parts then.
These 2 companies won't have 22nm parts.
These analysts confuse planer process with Finn process.
AMD stock is getting hammered as analysts have figured out that it is very low margin business.
Intel Works to Expand Role for Server Chips in Mobile
By Ian King - Jul 15, 2013 9:44 AM PT
Intel Corp. (INTC) doesn’t want to be left behind by the mobile-device revolution. So the world’s largest semiconductor maker is now working to put its server chips into machines that help bring smartphone data closer to users.
The company is currently preparing a trial with Nokia Siemens Networks Oy and South Korea’s SK Telecom Co., where its chips are being deployed in base stations -- wireless network antennas that include computers. The goal is to ease the congestion caused by an explosion in demand for data and services, said Intel Vice President Rose Schooler.
For Intel, the effort is another attempt to offset the impact that mobile devices are having on the personal-computer market that provides the majority of its revenue. Intel’s server chip business grew sales 7.5 percent to $2.59 billion in the first quarter, compared with a 6 percent decline in sales of PC chips to $7.99 billion. The company will report its second-quarter performance July 17.
Putting server chips into base stations “is a multi-hundred-million dollar opportunity for us at a minimum,” said Schooler. Commercial use may begin next year, she said.
Chief Executive Officer Brian Krzanich has said he will accelerate attempts to get Intel’s processors into smartphones, where it has less than 1 percent market share, according to Strategy Analytics. The company has had to settle for a dominant share -- more than 90 percent -- in the smaller market for servers that supply phones and tablets with information from data centers, according to Mercury Research.
Mobile Efforts
Success in this latest effort will hinge on Intel’s ability to convince potential customers such as Nokia Siemens, Ericsson AB, the largest maker of wireless networks, and Huawei Technologies Co. to build new equipment based around its chips.
“They will have to sign on in a big way for this to take off,” said Ken Rehbehn, an analyst at Yankee Group. “To be sure, it’s a goal of major operators, particularly in Asia.”
Intel is testing its chips in smart base stations as the strain on networks is forecast to increase. Globally, mobile data traffic will grow 13 fold from 2012 to 2017, a compound annual growth rate of 66 percent, according to Cisco Systems Inc. By the end of the forecast period, mobile traffic will be five times the volume for the entire Internet in 2005.
Currently, phone networks deploy radio waves to connect phones to base stations, which then use wires to access remote computers where video, Web-search results and Facebook pages are stored. A finite amount of radio spectrum limits how much data can be transmitted at once.
Local Storage
With the newer base stations that Intel is putting its server chips into, data relevant to local users is stored there in an attached computer. The proximity would get the data to a mobile phone more quickly and allow it to be disconnected, freeing up space for the base station to connect other users, said Schooler.
Examples include providing local weather information or video, pictures and information on a nearby tourist attraction. In tests, videos loaded 50 percent faster and Web search times had seconds knocked off them, said Schooler.
“Fundamentally, the biggest issue is that there’s not enough spectrum,” she said. “It’s about how do you add intelligence and bring the cloud out to the user?”
Phone services operators will add computing to their networks if it will increase revenue and localized, targeted advertising will be one of the more lucrative uses, said Joe Hoffman, an analyst at ABI Research.
“It really gets down to advertising,” said Hoffman. “Suddenly you walk into a store and they know you’re there.”
Intel is banking on the rapid growth of small cells, which are scaled down versions of larger base stations that service providers are deploying to improve the capabilities of their networks in areas of high demand such as city centers.
Still, wireless carriers may want to delay including servers in new equipment as it adds cost and increases the complexity of managing networks, said Hoffman. U.S. companies including Verizon Wireless and AT&T Inc. are trying to cap spending because they haven’t yet recouped investments in faster 4G networks, he said.
http://www.bloomberg.com/news/2013-07-15/intel-works-to-expand-role-for-server-chips-in-mobile.html
I have highlighed Intel's share in tablets.
--------------
Qualcomm Says Tablet Chip Will Build Lead Over Intel
By Ian King - Jul 16, 2013 9:01 PM PT
Qualcomm Inc. (QCOM), the largest seller of semiconductors for mobile phones, said it’s about to crack the tablet market, further distancing itself from rival Intel Corp. (INTC) in wireless computing.
The company has begun selling upgraded versions of its Snapdragon processor line and anticipates the new chips will appear in 200 phones and tablets, said Raj Talluri, a senior vice president at San Diego-based Qualcomm. He didn’t provide a timeframe.
“You’ll see a whole bunch of tablets based on Snapdragon 800 in the market this year,” said Talluri. “There’s a lot of talk about Intel and tablets. Clearly we see them still being far behind in mobile.”
The two U.S. chipmakers are vying to win customers in wireless as the computing market, historically dominated by Intel, shifts to handheld devices where Qualcomm’s technology has become the industry standard. In tablets, both companies are chasing Samsung Electronics Co., Texas Instruments Inc. (TXN) and Nvidia Corp. (NVDA) Intel is ahead of Qualcomm, capturing the fifth spot with 6 percent market share, according to research firm Strategy Analytics.
Intel, the world’s largest chipmaker, said in May that it revised the fundamental design of its processors for mobile devices, to better cater to smaller gadgets. It’s also focused on more energy efficient chips to save battery life.
“We’ve noticed many of our competitors talking more and more about performance, which is ironic now that Intel is competitive on power,” said Bill Calder, a spokesman for Santa Clara, California-based Intel. As computing capability comes to phones and tablets, “a balance of overall platform power and performance becomes increasingly important. This is an area of Intel’s strength,” he said.
Adding Power
Qualcomm, meanwhile, is adding processing power to make the phones and tablets it runs more like laptops.
Neither company has made a dent in the other’s main business. Intel had less than one percent of the market for smartphone processors at the end of the first quarter, according to Strategy Analytics. Qualcomm-powered computers from Dell Inc. and Samsung have suffered price cuts or been removed from shelves.
Qualcomm’s advantage in tablets is that its technology combines processing, communications, video, graphics and other functionality onto a single chip without killing the battery, Talluri said. Intel doesn’t have that capability, while tablets like Apple Inc. (AAPL)’s iPad, powered by Samsung-made processors, split those functions among a number of chips.
‘Full Suite’
“The only one that’s doing that out there today is Qualcomm,” said Alex Gauna, an analyst at JMP Securities in San Francisco, who has the equivalent of hold ratings on Intel, Nvidia and Apple and a buy recommendation on Qualcomm. “It’s got the full suite of solutions.”
Qualcomm rose 0.9 percent to $61.85 at the close in New York yesterday, giving it a gain of 14 percent in the past year. Intel added 1.3 percent to $24.25 and has dropped 3.5 percent in the past 12 months.
Intel reports second-quarter earnings later today and Qualcomm is scheduled to report next week.
That is exactly I was thinking. A couple of posters show up when such issues crop up.
Funny things that none of these posters put arguments in favor or against.
Very well put, WBMW.
This part Andy will never get. Let him enjoy while he is intoxicated.
Does Intel control this organization? No. Then how Intel cheated these results. Tests were run using the standard software.
If there is something wrong with the software then organization needs to take blame for that-which it has.
It has released latest version which proves exactly what I am trying to say.
http://www.bloomberg.com/news/2013-07-10/google-chromebook-under-300-defies-pc-market-with-growth.html
-----------
See the following comments from Intel
------------
Chipmaker Intel Corp. (INTC), another longtime Microsoft partner, also has more than 1,000 software engineers who spend at least some of their time working on Chrome OS, adding to it and making sure it works with the chipmaker’s microprocessors, according to Imad Sousou, vice president of Intel’s Software & Services Group.
I have highlighted the comments about Intel
--------------------------
Chips: Street Sees In-Line Q2, Uncertainty Beyond That
By Tiernan Ray
A number of Street observers today weighed in on the state of the semiconductor industry, before more dispiriting personal computer data points were revealed this afternoon by Gartner and IDC.
The reports were already featured a strong element of caution about the personal computer industry, and a tendency to hope other areas such as tablet computers might offset things. The overall view is that the June quarter looks like it will meet expectations, and things are less certain the rest of the year.
Barry Danaher and Paul Peterson of BlueFin Research Partners write that a semiconductor recovery is approaching its finale, and that while most chip makers may report the June quarter in line with expectations, Q3 will probably be disappointing given “sub-seasonal growth in PC, smartphone markets,” and the inventory replenishment of industrial chip markets:
We’re now two quarters into a mild semiconductor recovery after a sharp inventory correction in 2012. Demand improved in the June quarter, but we did not see the order surge and foundry expedites that occurred last year, as customers and suppliers are behaving more rationally this year. Many believed that the recovery was gaining steam during the quarter, pointing to the recently released Semiconductor Industry Association (SIA) data that showed May revenues spiking above the trend-line on a year-over-year basis. However, much of this reported growth was due to rising NAND and DRAM pricing associated with tight capacity. In fact, we believe growth is decelerating in the industrial and automotive markets, as inventory replenishment almost certainly contributed to the strong growth in the front half of the year.
Oppenheimer & Co.’s Rick Schafer writes that “We expect the majority of semi names to deliver in-line 2Q results and guide 3Q in line with consensus.”
Schafer doesn’t think an in-line Q2 will do much for the stocks:
We see in-line earnings as an unlikely positive stock catalyst and believe the group could trade lower. Group fundamentals continue to improve at a checked pace, with still lean channel/customer inventories and more rational growth expectations reducing the risk of another 2H head-fake. PC, our long-standing least-favorite vertical, has continued to underwhelm as secular decline accelerates. Even in a “back-half-loaded” year, we model 2013 PC units down 10%. Recent years have proven a departure from “normal” seasonality, and absent any go-to consumer products, we expect a more evenly split 1H:2H year for semis as a whole.
Schafer advises leaning toward those chip makers more broadly exposed to tablet computer sales, and to Apple (AAPL) in particular including Broadcom (BRCM), RF Micro Devices (RFMD), and Skyworks Solutions (SWKS). He advises avoiding non-Apple names such as Maxim Integrated Technology (MXIM) and Semtech (SMTC).
Nomura Equity Research’s Romit Shah weighed in on the prospects for Intel (INTC), whose shares he rates “Reduce,” with an $18 price target. Shah raised his estimates for the current quarter to 50 cents from 47 cents previously, and raised his year outlook to $1.84 from $1.75, based on an expectation of a reversal of prior quarters’ inventory reserves:
We expect gross margin to improve from 58.0% in Q2 to 61.5% in Q3 and 63.0% in Q4. One of the biggest drivers is the reversal of inventory reserves […] Between 4Q12 and 2Q13E, we estimate that Intel will record inventory reserves of 300bps (Figures 1 and 2). Those charges should largely reverse over the next two periods. In other words, Intel should benefit from the sale of previously written-off inventory to the tune of 150bps per quarter. In addition, Intel should recoup 450bps in startup costs over 2H13.
Shah thinks Intel may forecast Q3 revenue of $13.5 billion, below consensus of $13.7 billion, given he thinks “uptake of Haswell has been lower than the company’s expectations.”
On a more positive note than the others, Wells Fargo’s Patrick Wang thinks there’s upside for chip makers based on what he projects will be firm results from their contract chip manufacturers, Taiwan Semiconductor Manufacturing (TSM), and United Microelectronics (UMC):
Taiwanese foundry composite (TSMC + UMC) revenues increased 4% month- over-month in June (in USD terms), following an increase of 3% in May. On a year-over-year basis sales were up 22% in June, following an increase of 13% in May. Within the composite, UMC’s sales increased 3% month to month while TSMC’s sales increased 4% (in USD terms). Based on the combined monthly sales for the June quarter, we calculate that TSMC’s June quarter sales were NT$155.9 billion, toward the top of TSMC’s original guidance range for sales of NT$154-156 billion. UMC’s sales grew 15% sequentially, above UMC’s original guidance for sequential growth of about 13%. We take this to be an indication that fabless chip companies as a group continued to see improving demand for their products through the June quarter, building our confidence that upcoming June quarter reports from many chip companies will reflect revenues that are in line with or above the midpoint of original guidance […] Guidance midpoints imply 5% sequential growth expectation in June for Broadcom, 2% for AMD, 3% for Xilinx, 2% for Altera and 2% for Nvidia in its July quarter (Nvidia expects 7% sequential growth for its GPU segment). Qualcomm however expects its chipset unit shipments will be flat to down 6% sequentially in the June quarter.
http://blogs.barrons.com/techtraderdaily/2013/07/10/chips-street-sees-in-line-q2-uncertainty-beyond-that/
I do agree but this is a long term trend. Intel will be successful in the long run but in the short term, folks will not upgrade their phones and as such Intel will face difficulty in gaining much traction.
Ashraf posts here. I do read his articles but it has nothing to do what is happening to Intel stock today or in the short run.