"The subtext to Intel's comments was that the economy is getting better," Goldman Sachs analyst Terry Ragsdale said Friday, the day after Intel held its midquarter report. "But I don't think I could tell you I feel better than 60-40 about it."
In other words, don't be so sure that improvement is around the corner.
Intel said its core business of PC processors is on track to meet the company's second-quarter forecasts. That performance was enough to prompt Intel's chief financial officer, Andy Bryant, to repeat his belief that things have bottomed out in the PC world. "The Intel architecture business has stabilized," Bryant told analysts. "And we expect a second half that is seasonally stronger."
Ragsdale is one of the optimists about Intel. But his reasons for recommending Intel as a "market outperformer" have more to do with stock price than with definite signs of an improvement in business. Intel's situation is no worse than other well-known chipmakers, but Intel's shares have risen less than the Philadelphia Semiconductor Index in recent months.
Simply put, Ragsdale is gauging psychology. In his view, Wall Street sentiment can't get any worse for Intel.
"It may not be that exacting or academically sound," Ragsdale admits. "But it makes me want to take the other side of the argument."
Other analysts take the opposite view: investors have factored good news, rather than bad news, into Intel's stock price. When investors "factor in" good news, they typically drive shares higher in anticipation of the still-to-come event, such as better earnings results.
"While the market may very well, as it did last quarter, focus on Intel's comments of a 'better second half,' we continue to put less weight in this statement than others may," Wit SoundView analyst Scott Randall said. "Especially given the extremely weak first half, we believe that second-half growth is already well reflected in the stock and in investors' expectations."
Randall argued that Intel's second half is historically better than the first half and investors have already accounted for any gains.
Ragsdale and Randall represent both sides of the glass. And neither side has any real data to work with. Like most Intel analysts, they are forecasting largely by instinct.
Intel's second quarter has followed patterns of the past so far, so the company believes the rest of the year will proceed along historical lines, which would mean an improvement in the second half of the year. The company traditionally gets 55 percent of its annual business in the third and fourth quarters.
Unfortunately, back-to-school information won't arrive until July. And some of Intel's biggest customers aren't nearly as confident. Hewlett-Packard, for instance, cut its PC expectations just a day before Intel's conference call.
It's reasonable to expect that companies such as HP and Compaq have a better view of PC demand, analysts said.
"The main question is how customers can be lowering forecasts for PC demand and talking about increasing weakness in Asia and Europe, with Intel not seeing it," Lehman Brothers analyst Dan Niles wrote in a research report Friday. "The answer is that Intel is one step removed from the end customer."
Niles and other analysts say it's too early to call for a PC rebound. Several analysts believe Intel has achieved its second-quarter targets so far because of strong orders at the end of March; bookings fell in April and much of May.
The last week of May saw an increase in business from PC motherboard makers, Ragsdale says. But he doesn't know whether that represents a true rebound or merely a temporary surge as in March.
That dearth of knowledge didn't stop Intel shareholders from trading the stock at higher prices during after-hours activity immediately after the company's mid-quarter conference call. Intel also rose early Friday, before shares retreated as the overall market dropped.
Either way, no one will know for at least another month.