Joe Osha
Joe Osha
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The semiconductor sector in general is in very good shape; the industry hasn't invested enough in capacity and that is actually very good for chip makers. Intel is often treated as a proxy for the chip sector, so the chip sector is doing well and so is Intel.
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At 27 times our 2003 earnings estimate Intel is still expensive relative to its growth prospects and its own history.
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We continue to believe Intel will apply competitive pressure to AMD in the desktop and mobile markets in an effort to blunt further shares gains, even if the result is negative for Intel's own profitability in 2006.
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Just because Intel has faltered does not mean the company is now incapable of executing.
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We suspect that Intel will, at some point, respond with aggressive pricing rather than allow AMD to continue to build market presence.
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Given the challenges Intel faces currently with its business model, we think the stock needs to trade on a lower multiple of 2003 earnings to be attractive.
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The reason I am positive on the stock right now is the fact they are pushing into servers, workstations -- the things that are being driven by growth in the Internet. That is a big market that Intel can dominate, I think, pretty quickly.
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We believe that Intel will be forced to respond competitively to AMD in the coming year, which may put more pressure on Intel's pricing than we had expected.
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We believe that Intel had largely completed shipping its quarter prior to Sept. 11.
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Despite our conservative remarks on margin compression and pricing intensity, we continue to believe Intel will meet our revenue forecast and reiterate our intermediate-term neutral and long-term accumulate rating.
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For now, we're staying with the neutral intermediate-term rating on AMD's stock until we see how the company weathers the Northwood launch. We are still long-term strong buyers of the stock -- even if AMD suffers at the hands of Northwood it will not plunge as deeply into loss as it has during past Intel offensives.
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In posting the weakest Q4 revenue result and Q1 outlook since the bursting of the bubble, Intel has made it clear how much competitive ground the company has lost to AMD. The extent of the losses has exceeded our expectations.
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We think it's likely that the stock will see a short-term rally on relief that the outlook has not deteriorated further, but the absence of bad news does not constitute an argument in support of the stock...we struggle to understand the upbeat consensus outlook for the fourth quarter.
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Texas Instruments' decision to buy analog specialist Burr-Brown fits well with the company's stated objective of building its presence in the analog business. Despite the somewhat rich valuation for the deal, we think that the deal makes sense for TI. We reiterate our intermediate-term and long-term buy ratings for the stock.