Friday, 17 January 2014

Intel - oops, they did it again

I look at a lot of corporate presentation documents.  One of the most insightful slides of recent months was this offering from Intel after their November capital markets day.  I have kept my commentary from the posting I wrote at the time too:

'Intel shares are off 5% odd today after their investor day.  I was not that impressed with the company after I reviewed their dull/disappointing last quarterly guidance. 

After multiple presentations, I almost fell off my chair when I saw a couple of the concluding charts by the company's CFO.  HOW MANY TIMES CAN YOU SAY 'FLAT' IN ONE SLIDE CHART?'

 
To be fair though, it has not stopped the share, which closed yesterday kicking around the US$27 level and basically near a high for the last year:
 
 
Flat would be good given yesterday's after the US close numbers and the share is expected to open down at least 5% today. 
 
So what went wrong?  Well the first rule of any management guidance at the moment should be that the use of the word 'tapering' presages bad news...
'We saw a tapering off in order patterns at certain customers across certain segments. We think that was driven by the government shutdown and uncertainty.'
Weak PC sales (as PCs continued to structurally decline...), losses in the 'other architecture' division indicating the lack of market share in areas such as tablet chips and McAfee and related produced a US$1m profit only.  Only the Data Center division could hold its head up. Net result: operating income down 16% year-on-year.
 
And it continues into 2014 with gross margin in Q1 expected to fall 3% points from the Q4 level just published.  At 59% this will also be below the psychologically important 60% level.  Lower volumes and preparatory launch expenditures for their delayed new Broadwell chip are being blamed here. 
 
Two other fascinating statistics were:
 
'Opex rose 8% Y/Y, outpacing revenue growth of 3% and contributing to the EPS miss. $528M was spent on buybacks, up from $500M in Q3'
Maybe the operating expenditure rise could be 'understood' by new product launches but there still sounds like a lot of fat that could be culled there.  As for the low level of buybacks - what is that saying about the Intel share price?  Especially with US$10bn of net cash on the balance sheet.
Today - following the share price rise - the company trades on about x10 EV/ebit FY14e. Given the above prospects and the poor share buyback signalling, I cannot get excited by this, not when you have other technology behemoths like Cisco who also retain similar optionality in their balance sheets and are just maybe closer to doing something about it. 
 


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