Intel Corp. (NASDAQ: INTC) is scheduled to report first quarter earnings on April 17. I think it will match its projected first quarter EPS forecast of $0.22. After all, INTC matched quarterly earnings expectations in the fourth and first quarters of 2006.
Intel has been in a protracted price war with Advanced Micro Devices, Inc. (NASDAQ: AMD) but it looks like Intel is coming out ahead of the game. According to MarketWatch, Intel's gain in unit market share will offset weaker average selling prices resulting from the AMD price war.
Despite introducing new Core Duo and Xeon chips to counteract AMD advances since 2004, Intel lost share to AMD -- ending 2006 with 75% of the worldwide microprocessor market, while AMD owned 25%. Based on AMD's sales warning April 9, analysts believe that Intel gained some market share from AMD over the past three months -- withstanding price cuts which AMD initiated to eliminate its inventory of older processor parts.
But analysts are worried about the impact that these price cuts had on Intel's gross profit margins -- calculated by dividing the difference between revenues and cost of goods sold by revenues. Intel forecasts a Q1 2007 gross margin of 49% of sales -- far lower than its best levels -- between 55% and 62%.
But Intel is looking cheap. It trades at a Price Earnings/Growth (PEG) ratio of 0.75 -- a forward P/E of 18.7 divided by 24.8% earnings growth to $1.37 in 2008 -- and it pays a 2.2% dividend yield. So if it beats its 49% gross margin forecast and projects margin expansion, INTC could rise.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in AMD or Intel.
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Reader Comments (Page 1 of 1)
4-13-2007 @ 9:57PM
Bob Geary said...
What price war?
http://www.tgdaily.com/content/view/31621/137/
From the Intel side it is hard to see this as a price war, given that almost all of the recent price erosion has been on AMD's side of the ledger.
If anything, Intel is in a share war, but it would seem that is resolving itself nicely from their point of view.