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Chip Recall Hurts Intel’s Reputation, Tablet Fears A Bigger Problem
Jan. 31 2011 - 12:51 pm | 3,051 views | 0 recommendations | 0 comments
By AGUSTINO FONTEVECCHIA
Mooly Eden, Intel vice president for communica...
Intel vice president for communications shows new chip at a press conference.
A flaw in one of its newest Sandy Bridges chipsets has forced Intel to halt and recall orders early Monday morning, sending the stock diving down and prompting a halt that has benefitted its main competitor, AMD, which has surged in the first half of the trading session.
The Santa Clara, California-based chipmaker announced on Monday that a “design issue” on the recently released Intel 6 series support chip has forced it to stop production and recall faulty devices. The flaw, by which the SATA-ATA ports degrade over time and affect the performance of DVD and hard-drives, will cost the company approximately $700 million in revenue, $300 million of which will impact the company’s finances in the first quarter of 2011.
Investors engaged in an initial sell off, sending the stock diving 57 cents or 2.6% to $21.05. A slight recovery took place later in the session, with the stock trading down 1.2% or 25 cents to $21.21 by 12.35 PM. AMD, Intel’s largest competitor, surged on the news, and was trading up 6.4% or 48 cents to $7.97. (Read Quiet Before the Storm: Intel and AMD Dominate the Chip Industry Ahead of Tablet Showdown).
Fourth quarter 2010 results would take a retroactive hit of $450 million, while first quarter 2011 revenues will be reduced by about $300 million, or an EPS effect of 3 cents. This means Intel’s gross margins will take a hit too, retroactively for the fourth quarter margins will fall 4% to 63.5%, while first quarter margins will be pushed down 2% to about 61% on GAAP basis.
To compensate, Intel raised its full-year revenue growth expectations to the “mid-teens” from 10%, and first quarter revenues up to $11.7 billion plus or minus $400 million, from the $11.5 billion plus or minus $400 million range. In part, Intel’s acquisition of Infineon Technologies, which develops semiconductor products and solutions for wireless phones such as Apple’s iPhone, will help smooth the effect of the chip recall, as it’s expected to add roughly $500 million of revenue to the first quarter, according to FBR Capital Markets. (Read Verizon-grows-customer-base-ahead-of-iphone-release/”>Verizon Grows Customer Base Ahead of iPhone Release).
Analysts at FBR considered the recall “relatively immaterial to annual earnings.” Given the manageable “4% annual impact” of the flaw and the fact that “most of the financial impact will be felt in 1Q11 and not thereafter,” the effect seems to be more on the reputation side. UBS Investment research, which holds a “buy” rating on the stock and a target price of $27, noted that the reputational damage “will be minor,” as Intel is “addressing the problem well ahead of when end-customers could start reporting that they can no longer access their hard drives.” S&P Research cut its price target by $1 to $26 and reiterated its “buy” opinion as they believe the stock to be “attractively valued.”
FBR’s research shows that with PC shipments in the first quarter of 2011 “slightly above consumption levels,” PC chip stocks will be “unexciting” in the first quarter. Furthermore, as they see greater demand for Intel’s older Calpella product, preferred for its price/performance versus Sandy Bridges, the recall won’t affect sales too strongly. “Our contacts suggest that HP, Apple, and Lenovo are relatively stronger with HP pricing aggressively in Asia for Chinese New Year, and with Apple pursuing some Macbook and Macbook Air rush orders in December and January,” reads the note.
The final portion of the FBR note deals with the possible cannibalization effects of iPads and tablets in general on PCs. While Intel holds an monstrous lead in terms of market share in the PC semiconductor market (with around 80% of market share, compared with something like 10% for AMD, number two in market share), the company runs from behind in the mobile and tablet universe. Qualcomm, NVIDIA, AMD, and even ARM Holdings (which developed the architecture used by Apple in its iPhones and iPads), are a step ahead of Intel and its Atom microprocessor. FBR Capital Markets believes tablets will eat into about 8% of PC unit sales. “We think every two to three tablets sold is in place of a PC so 2.5 tablets cannibalizes one PC. With Apple set to build 40 million tablets in 2011, and with another 30 million tablets coming from Samsung, RIM, Motorola, Nokia, and others, we think 70 million tablets will cannibalize 28 million PCs in 2011.” The question, according to FBR, is whether this “investor overhead” has caused excessive negative sentiment, or if it’s overdone.
Source http://blogs.forbes.com/afontevecchi...igger-problem/
Jan. 31 2011 - 12:51 pm | 3,051 views | 0 recommendations | 0 comments
By AGUSTINO FONTEVECCHIA
Mooly Eden, Intel vice president for communica...
Intel vice president for communications shows new chip at a press conference.
A flaw in one of its newest Sandy Bridges chipsets has forced Intel to halt and recall orders early Monday morning, sending the stock diving down and prompting a halt that has benefitted its main competitor, AMD, which has surged in the first half of the trading session.
The Santa Clara, California-based chipmaker announced on Monday that a “design issue” on the recently released Intel 6 series support chip has forced it to stop production and recall faulty devices. The flaw, by which the SATA-ATA ports degrade over time and affect the performance of DVD and hard-drives, will cost the company approximately $700 million in revenue, $300 million of which will impact the company’s finances in the first quarter of 2011.
Investors engaged in an initial sell off, sending the stock diving 57 cents or 2.6% to $21.05. A slight recovery took place later in the session, with the stock trading down 1.2% or 25 cents to $21.21 by 12.35 PM. AMD, Intel’s largest competitor, surged on the news, and was trading up 6.4% or 48 cents to $7.97. (Read Quiet Before the Storm: Intel and AMD Dominate the Chip Industry Ahead of Tablet Showdown).
Fourth quarter 2010 results would take a retroactive hit of $450 million, while first quarter 2011 revenues will be reduced by about $300 million, or an EPS effect of 3 cents. This means Intel’s gross margins will take a hit too, retroactively for the fourth quarter margins will fall 4% to 63.5%, while first quarter margins will be pushed down 2% to about 61% on GAAP basis.
To compensate, Intel raised its full-year revenue growth expectations to the “mid-teens” from 10%, and first quarter revenues up to $11.7 billion plus or minus $400 million, from the $11.5 billion plus or minus $400 million range. In part, Intel’s acquisition of Infineon Technologies, which develops semiconductor products and solutions for wireless phones such as Apple’s iPhone, will help smooth the effect of the chip recall, as it’s expected to add roughly $500 million of revenue to the first quarter, according to FBR Capital Markets. (Read Verizon-grows-customer-base-ahead-of-iphone-release/”>Verizon Grows Customer Base Ahead of iPhone Release).
Analysts at FBR considered the recall “relatively immaterial to annual earnings.” Given the manageable “4% annual impact” of the flaw and the fact that “most of the financial impact will be felt in 1Q11 and not thereafter,” the effect seems to be more on the reputation side. UBS Investment research, which holds a “buy” rating on the stock and a target price of $27, noted that the reputational damage “will be minor,” as Intel is “addressing the problem well ahead of when end-customers could start reporting that they can no longer access their hard drives.” S&P Research cut its price target by $1 to $26 and reiterated its “buy” opinion as they believe the stock to be “attractively valued.”
FBR’s research shows that with PC shipments in the first quarter of 2011 “slightly above consumption levels,” PC chip stocks will be “unexciting” in the first quarter. Furthermore, as they see greater demand for Intel’s older Calpella product, preferred for its price/performance versus Sandy Bridges, the recall won’t affect sales too strongly. “Our contacts suggest that HP, Apple, and Lenovo are relatively stronger with HP pricing aggressively in Asia for Chinese New Year, and with Apple pursuing some Macbook and Macbook Air rush orders in December and January,” reads the note.
The final portion of the FBR note deals with the possible cannibalization effects of iPads and tablets in general on PCs. While Intel holds an monstrous lead in terms of market share in the PC semiconductor market (with around 80% of market share, compared with something like 10% for AMD, number two in market share), the company runs from behind in the mobile and tablet universe. Qualcomm, NVIDIA, AMD, and even ARM Holdings (which developed the architecture used by Apple in its iPhones and iPads), are a step ahead of Intel and its Atom microprocessor. FBR Capital Markets believes tablets will eat into about 8% of PC unit sales. “We think every two to three tablets sold is in place of a PC so 2.5 tablets cannibalizes one PC. With Apple set to build 40 million tablets in 2011, and with another 30 million tablets coming from Samsung, RIM, Motorola, Nokia, and others, we think 70 million tablets will cannibalize 28 million PCs in 2011.” The question, according to FBR, is whether this “investor overhead” has caused excessive negative sentiment, or if it’s overdone.
Source http://blogs.forbes.com/afontevecchi...igger-problem/
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