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."