Intel (NASDAQ: INTC), the arch rival to chip competitor Advanced Micro Devices (NYSE: AMD), released its Q4 earnings report on Thursday after the bell. The good news is that everything went according to plan and Intel reported earnings of 4 cents per share as was indeed expected. The bad news is it was a drop of 89%. Big ouch. Revenues took a dive of 23%, coming in at $8.2 billion and also meeting expectations.
This is always an odd situation. A company at least has the decency to meet expectations, but how can an investor get too happy when revenues and profits are on the decline? We already know what's up with the chip maker's situation: demand for its products are down, for obvious macro reasons. Plus, lower-margin netbooks are exerting an effect.
One thing to note is that a $1 billion write-down related to an investment in Clearwire really influenced the net income picture in the fourth quarter. The press release does point out that Intel delivered $11 billion in operational cash flow for the whole year, so fans of cash flow can at least be cheered up by that result. That amount more than covered capital-expenditure needs and dividend obligations.
However, we all know what the market really pays attention to when it comes to Intel: the gross margin. And I'm afraid that the news is not so nice on this front. The gross margin declined in the quarter, and according to management's outlook, it won't be so hot in the first quarter of 2009.
I just can't see making a bull case for Intel's stock at this time. I know it went up 4% in the after-hours session Thursday and it is indicating about 3% higher in premarket trading, but so what? I think Intel is facing a very challenging twelve-month period; I think the news flow for the tech entity will be unattractive, and I definitely see more downside for a stock that is relatively close to its 52-week low. Yes, it does pay a nice dividend yield, but I get the feeling that an even better dividend yield may be up for grabs.
I know that some say that basically Intel's Q4 could have been worse. Sure, that's true, but it's not a reason to buy. The data set is clear on this one: be very cautious about buying Intel. Value investing can sometimes be a troublesome affair in severe bear markets...
Disclosure: I don't own any company mentioned; positions can change at any time.
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