SAN FRANCISCO—Wall Street analysts Wednesday (Oct. 13) gave generally mixed reviews to Intel Corp.'s third quarter earnings report, saying the company's sales target for the fourth quarter was better than feared, but suggesting that the company still faces some headwinds in a slowing market.
Intel (Santa Clara, Calif.) Tuesday beat consensus analyst expectations for third quarter sales, reporting that revenue rose 18 percent compared with the year-ago quarter, reaching $11.1 billion. It was the first time the world's biggest chip maker recorded more than $11 billion in sales in a quarter.
Craig Berger, an analyst with FBR Capital Markets, raised his firm's estimate for Intel's fourth quarter earnings per share to 55 cents from 50 cents after Intel gave guidance for the quarter that was better than expected. Intel said it expects fourth quarter revenue of between $11 billion and $11.8 billion.
Intel also said it expects its fourth quarter gross margin to be between 65 and 69 percent, compared with 66 percent in the third quarter. Berger said Intel's fourth quarter gross margin guidance was also better than many feared and "suggests that Intel is successfully managing its fab utilization rates for a (very) soft landing."
But Berger said his firm remains neutral on Intel despite its relatively inexpensive share price because he expects the iPad and forthcoming wave of tablet computers to impact PC growth rates and because Intel already has 85 to 90 percent market share in its core microprocessor market. Berger said other chip stocks could rise in value more quickly.
"We respect [Intel's] stellar execution and robust product roadmap, but prefer [Texas Instruments Inc.] over [Intel] for large-cap value exposure," Berger said.
Berger raised his firm's estimate for Intel's 2010 GAAP earnings per share to $2 from $1.93 and raised his price target for Intel shares to $27 from $26. Intel shares traded at $19.64 in afternoon Nasdaq trading Wednesday, down 13 cents from Tuesday's close.
JP Morgan analyst Christopher Danely, meanwhile, said he believes Intel is a little too sanguine on deteriorating business conditions and said the company is not moving quickly enough to adopt a defensive stance and lower capacity utilization rates.
"Although we believe Intel is getting closer to lowering utilization rates and adopting a more defensive stance, the company’s tone on the conference call indicates to us that Intel believes business will improve," Danely wrote in a report circulated Wednesday. "We believe the company will miss guidance and adopt a defensive stance and lower utilization rates sometime over the next few months, at which point we could become more positive on the stock."