SAN FRANCISCO—Wall Street analysts acknowledged the obvious Wednesday (April 20)—that their estimates for Intel's first quarter sales and earnings were too conservative—a day after Intel reported first quarter financials that handily exceeded analyst expectations and the company's own targets.
Intel Tuesday reported first quarter sales of $12.8 billion, up 12 percent sequentially and up 25 percent year-to-year. The world's No. 1 chip vendor reported GAAP net income of $3.3 billion, or 56 cents per share, flat with the previous quarter and up 2.9 percent from the year ago quarter. Both numbers handily beat consensus' analysts' expectations of sales of $11.6 billion and earnings per share of 46 cents, as well as Intel's own guidance for the quarter, which called for sales of $11.1 billion to $11.9 billion.
Doug Freedman, an analyst with Gleacher and Co. in San Francisco, said Wall Street analysts—including himself—didn't appreciate the magnitude of the inventory burn of Intel parts in the third and fourth quarters of 2010, ahead of the launch of the company's Sandy Bridge processors. Freedman said he and fellow Gleacher analysts now believe that Intel and Advanced Micro Devices Inc. under-shipped to PC demand in 2010.
"As a result, we believe Q1 fill was greater than expected as lean channels appropriately built to have adequate stock," Freedman wrote in a report circulated Wednesday (April 20). "We also expect the same phenomenon to play out in Q2, likely proving current guidance to be conservative before balance is restored in Q3."
"Early demand for Sandy Bridge has been outstanding," said Paul Otellini, Intel's president and CEO, in an analyst call following the first quarter report Tuesday. "In fact, the ramp of Sandy Bridge in the channel is the fastest ramp we've ever seen, and sell through has been robust."
Freedman suggested that one possible explanation for Intel's blowout quarter was that Intel had better than expected sales of Sandy Bridge and NAND flash memory, and better than expected revenue from the recent acquisitions of McAfee and Infineon's wireless chip unit.
Freedman maintained a "buy" rating on Intel's shares and raised his price target for them to $28 from $27. Intel shares traded at $21.15 in afternoon trading Wednesday, up 6.5 percent from Tuesday's close.
During the analyst call Tuesday, several analysts asked about the discrepancy between first quarter PC sales estimates from third-party market research firms like Gartner Inc. and International Data Corp. (IDC) and Intel's robust numbers. IDC said first quarter PC sales declined 3.2 percent compared to the first quarter of 2010, while Gartner estimated that first quarter PC sales declined 1.1 percent compared to the first quarter of 2010.
Stacy Smith, Intel's chief financial officer, said the fourth quarter saw a significant bleeding off of inventory, some of which Intel believes was in anticipation of Sandy Bridge.
Otellini said third-party analysts estimates for 2011 PC sales are "all over the map." Gartner's most recent estimate for PC sales growth is slightly less than 11 percent for the year. According to Otellini, IDC's forecast is 6 or 7 percent growth for the year. Intel's own forecast for 2011 PC market growth is "low double digits," Otellini said.
"There are some that we agree with and some that don't," Otellini said. "And I think as normally happens when we release our results and when our competition releases theirs and they integrate all the data, they revise the forecasts."
A few months ago, I cannot recall the article; but there were many people who stated that Intel management were making a few bad investments and Wall Street analyst predicted that Intel earnings would suffer. Many of us disagreed. To report a 12% increase in sales during these time tough times, that is outstanding. Great job Intel.
The most important take away from this article is too understand why the analysts blew the Intel earning estimates. To me over the last year 95% of Wall Street analysts got Intel wrong. 1)they don't understand the scale of the data center build-out. 2)they seem to be oblivious that Mac sales are booming with Intel inside. 3)Intel's lead in process technology gives them a big advantage in gross-margins. As of this year you could says Intel's and Micron's venture in NAND flash memory and their new 20nm process will increase earnings growth even more.
In New England we accept as an article of faith that the weather forecast will be wrong (the plan for this week was cloudy / rainy or thunderstorms all week but right now the sky is completely blue with not a cloud to be seen). I'm starting to think that stock analysts (absent illegal leaks from the corporation) have a similar track record. Kudos to Intel for their performance - and for maintaining their financial integrity.
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