Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Despite Hard Drive Shortage, Expect Few Surprises From Intel

Sales of PCs and servers fell during the last few months of 2011, mainly because there weren’t enough hard drives to go around, as a result of the flooding situation in Thailand.

This fact caused chipmaker Intel to slash its sales forecast for the quarter by $1 billion, to $13.7 billion plus or minus $300 million. Today we’ll see just how bad the damage was, and how bad it’s going to be going forward, as the company reports its results after the close of markets today.

In a note to clients, Deutsche Bank analyst Ross Seymore says not to expect many surprises from Intel. Despite the lower sales guidance, he sees little change to Intel’s overall profitability. He expects Intel’s gross margins, a key metric in measuring profitability, to come in only slightly below the 64.5 percent that Intel had previously forecast. “We see little risk to gross margins despite the lower revenue because product mix continues to be solid,” Seymore wrote.

And while the first half of the new year is always seasonally slower than the second half, Seymore expects it to be slower still for Intel. He’s expecting sales in the first quarter of 2012 to come in at $12.73 billion, with a per-share profit of 51 cents, which is below the consensus of analysts who expect Intel to book sales of $12.8 billion. He also expects the hard drive shortage to hit Intel harder in the first quarter, as the supply of hard drives dries up. Gross margins in the quarter, he expects, will drop below 61 percent. Expect conservative guidance on PC demand for the quarters ahead.

Even so, Seymore rates Intel a Buy, with a $27 price target. “We believe Intel is well-positioned to benefit from new product introductions, improved execution and stable PC demand,” he wrote. He said that competition in chip prices from Intel rival Advanced Micro Devices should “remain benign,” mainly because AMD is fabless and so is at a competitive disadvantage with Intel. Other sectors of Intel’s business, including its flash memory operations, are showing improvement.


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