By Benjamin Pimentel
SAN FRANCISCO (Dow Jones) - Investors betting on a sharp
snapback in chip demand were clearly disappointed by Intel Corp.
which boldly called a bottom for personal computers, but did so
with a strong hint of hesitation.
This much was evident Wednesday morning when shares of Intel
(INTC) and major chip and chip-tools makers tumbled, even after the
semiconductor giant issued better-than-expected first-quarter
results.
The declines sent Philadelphia Semiconductor Index (SOXX) down
2.7%, falling further than the Nasdaq Composite Index (SOXX) which
was down 1%.
In the first major report for one of the most widely anticipated
tech earnings season in years, Intel posted lower profit and sales,
but also exceeded Wall Street expectations. In a stunning move,
Chief Executive Paul Otellini also called a bottom for the battered
PC market.
But the Santa Clara, Calif.-based company also again held back
in giving a formal guidance which led some analysts to wonder if
Intel was just being prudent - or things may not be as rosy as the
tech behemoth was trying to portray.
Intel's report was "a wrinkle in the sharp snapback thesis," JP
Morgan analyst Shawn Webster told clients in a research note,
adding that the company's results were "perhaps not good enough for
those hoping for a sharp snapback."
Intel said it expected second-quarter sales to be roughly flat
from the first quarter, which actually would be an improvement for
a typically seasonally down period. The projection of $7 billion in
sales also was in line with the official consensus, but it fell
short of the "whisper" expectation of a sequential jump.
"We believe investor expectations for stocks with PC exposure
such as Nvidia Corp. (NVDA), Marvell Technology (MRVL) and Intersil
Corp. (ISIL) are high for second-quarter revenue growth given the
improving news flow from the PC/foundry food chain in Asia over the
last two months," Webster said.
He added, "As a result, we believe the flat outlook from Intel
could be a disappointment to those expecting a more robust
recovery, and negatively impact a range of PC chips stocks short
term."
True enough, Nvidia was down 5.3% Wednesday, while Marvell was
off about 0.7% and Intersil was behind 5.7%.
Concerns about near-term demand for semiconductors inevitably
also hurt Intel's arch-rival Advanced Micro Devices (AMD), the
second biggest maker of PC chips, whose shares fell 4.7%.
"Well, soft for Intel should mean softer for AMD," analyst Brian
Piccioni of BMO Capital Markets said in an e-mail interview.
Intel's statement that its capital spending will be slightly
down in 2009 also was bad news of makers of semiconductor
manufacturing equipment. Shares of Applied Materials Inc. (AMAT)
and Novellus Systems (NVLS) were down more than 4%, while and
KLA-Tencor (KLAC) was off 3%.
Some analysts are closely watching the semiconductor sector
since chip companies are often seen as indicators, as they must
build their products ahead of any upswing in demand for
end-customer goods.
Reports of a rising demand in Asia had prompted some analysts to
believe that the market was picking up, although analysts say this
is still largely a response to an overcorrection in inventory.
"Given Intel's size and market share, we believe the firm is a
proxy for the bottoming process that is likely occurring across
most consumer and enterprise markets," Stifel Nicolaus analyst Cody
Acree told clients in a research note . "We believe the troughing
is more a function of excess inventories finally being depleted
than a dramatic improvement in the trajectory of sell-through."
Still, some analysts are convinced of a brightening picture for
the chip sector and the tech industry in general, highlighted by
Otellini who told analysts in Tuesday's call, "I believe the worst
is now behind us from an inventory correction and demand level
adjustment perspective."
Analyst Craig Berger of Friedman, Billings, Ramsey & Co.
said he remains positive on chip stocks "over the next two to three
quarters, as the inventory replenishment trade gives way to the
reflation trade, and eventually, to the demand recovery trade."
He said investors "should prepare for the possibility of a
sell-off this spring or summer, but plan on buying in this dip to
be positioned for another round of improved chip fundamentals
coming later this summer as the holiday build begins to ramp."