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Thursday, November 06, 2014 4:12:13 PM
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Intel: Another Fire Drill By Bernstein This Time
Nov. 5, 2014 2:39 AM ET | 22 comments | About: Intel Corporation (INTC)
Disclosure: The author is long INTC. (More...)
Summary
Intel was downgraded to sell by Bernstein after the close of the market Tuesday.
The reason was a very unlikely inventory build in the "the channel".
We might have very good news coming on November 20.
After the market close Tuesday Bernstein's Intel (NASDAQ:INTC) permabear, Stacy Rasgon, downgraded Intel to sell, where he was during the Intel price move from about $20 to $30. Because he was at a sell at that time, presumably at least some of his clients felt some safety in shorting Intel. So Bernstein's call, if followed, not only caused his clients to miss a 30% rise in the price of Intel, but some probably took gas on short positions. After all, "sells" are so rare among analysts these days that a simple "sell" is tantamount to advising a short position.
So in less than a month we have had three questionable calls that have affected the semiconductor industry as a whole and Intel in particular. First Microchip technology warned that their "crystal ball" and "canaries" indicated a general downturn for semiconductors, then we had Intersil, a company that can't figure out whether the computer business is good or bad for them, or why it is either, decided to blame their warning on lower PC builds.
Microchip pretty much admitted that their canary theory was a bunch of bird droppings.
Now we have Stacy Rasgon worrying for you about an inventory build "in the channel". It is worth noting that Stacy's upgrade last June caused the stock price to do exactly…nothing. Tuesday's downgrade, in the thinly traded aftermarket, seemed to cause the stock price to decline about $.50.
Since the 2000-2001 "Tech Wreck" debacle, Intel, and others, have become much more sophisticated in their supply chain management. Intel has just-in-time fulfillment centers in all major geographies. When a customer needs parts they draw from these inventories as needed, no more, no less. The last thing that Intel needs is uncommitted inventory in customers' hands. Those parts have a nasty way of coming back at the most inopportune times. Because of this it is virtually impossible for a surprise inventory build in the channel. Distributors can be used is some cases, but only if the end customer is financially shaky. That isolates Intel from potential bad debt write-offs.
Another point is that in this stage of the product cycle, i.e., a full range of Broadwell soon to be released, Intel doesn't need stray chunks of Haswell parts hiding in the nooks and crannies of the supply chain. So, they get particularly vigilant at this stage. Given all this, I'm going to run with "No Inventory Build". Sorry Stacy.
I think that in our hearts we know that the stock market is a snake pit. The stock market is a self-regulating body. That means that there are damn few laws that can bring the SEC down on anybody. Blatant cases of insider trading have got a few cheaters whacked, but HFT (High Frequency Trading) is tolerated and it is just another form of insider trading (front-running). So, manipulation in the stock market is rampant, but not illegal. If manipulation were illegal Jim Cramer should be cooling his jets in a cross bar hotel. He admitted to manipulating the market on a widely distributed video.
Listening to analysts, with the exception of a very few, seems to be a fool's errand. There are writers on Seeking Alpha with far better performance records than the best of Wall Street analysts.
So, what's going on here? On November 20 Intel is hosting its investor meeting. This is where market analysts get all the latest dope on how the business is running and likely to be running during the next year or two. Intel has had no product press releases since well before the third quarter earnings announcement. During the earnings conference call Intel CFO Stacy Smith deferred several questions to the investor meeting. It is clear that Intel will make no comments about new hardware or business initiatives, bookings or shipments, either good or bad until about a week before that meeting. Basically Intel clams up tight before the analyst meetings, saving as much information as they can for that major event.
If there were to be any manipulation, the period from the earnings announcement to about a week before the investor meeting would be an ideal time to do it, knowing that Intel is not about to refute rumors that would blow the manipulators out of the water.
What possible motive could Stacy Rasgon have for downgrading Intel in the face of news like this:
Dell has increased their PC shipment nearly 20% during the third calendar quarter of 2014; this increase may be attributed to a collection of different factors. Dell has a diverse portfolio of devices and enterprise solutions.
Does anyone really think that Dell is the only one with big numbers on PCs?
Stacy Rasgon has been wrong about Intel for a long time, he has been right for only about the last five months, citing "several" catalysts for the stock five months ago. Apparently those catalysts have gone poof, or maybe Rasgon simply doesn't understand the semiconductor business and the Intel supply chain. More likely he was "told" that Intel was a sell so that some important client(s) could get on this gravy train on the cheap.
I might point out that 6.7 million Intel share traded exactly on the market close Tuesday. Yes, at exactly 16:00:00, and those shares traded at the ask of $34.54, indicating a buy motivated trade. That 6.7 million share is about four times what could be explained by the Intel share buyback.
I can't profess to understand precisely what is going on here, but a smart money buy of 6.7 million shares minutes before a Stacy Rasgon downgrade doesn't smell right. By November 20 we will see if Stacy is on to anything or if Intel has a few product surprises of their own up their sleeve.
I'm betting on the Intel side.
Very long in Intel LEAPS and I even have a nice position in Nov 28 35 calls in order to capture any good news coming from the investor meeting.
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