2HRS2GO: Low expectations help Intel

3 min read

COMMENTARY -- Intel (Nasdaq: INTC) is showing us how to defy a down market: let observers believe the worst, then trump them.

While the overall market trembled this morning beneath the weight of IBM (NYSE: IBM) and Chase Manhattan (NYSE: CMG), Intel rolled up a 6 percent gain as today's most heavily traded stock. Defying a strong negative trend is unusual for the chipmaker, and even stranger was the way Intel did it.

Yesterday afternoon's quarterly conference call was about as unremarkable as it gets for a major company. CFO Andy Bryant provided little illumination beyond what was in the earnings news release, and Executive Vice President Paul Otellini basically confirmed what many observers already suspected regarding the timetable for the company's production ramp.

Some analysts expected better things. Needham & Co.'s Dan Scovel, for instance, pointed out to Reuters that Intel not only lost market share, but also forecast relatively meager sequential growth in the fourth quarter. Merrill Lynch's Joe Osha cut his Intel rating to "long-term accumulate" from a "buy" advisory.

But by and large, Wall Street was just happy to hear that things aren't looking any worse than they did when Intel warned last month. "The sales guidance for the fourth quarter is less than what you'd hope for, but given how depressed the rest of us have been throughout the summer, we'll take it," Lehman Bros. analyst Dan Niles said yesterday.

Even U.S. Bancorp Piper Jaffray's Ashok Kumar, who downgraded Intel two weeks before the company talked about third quarter weakness, believes INTC stock has been beaten down too much. Kumar believes Intel could bounce back to as much as $55 per share within six months.

Intel might even be doing better than expected. Before yesterday, some analysts were looking at 17 percent annual growth for the company; now it looks like Intel revenue will rise at least 20 percent for the year.

It's not much different than what happened with Gateway (NYSE: GTW) last week. PC analysts went into the Gateway call prepared for the worst, and instead, they heard Gateway executives assert that nothing has changed. That was enough to send GTW soaring the following day.

To anyone who bothered to heed the messages over the last few weeks, the lack of a disaster isn't surprising. Not only Gateway, but also Compaq (NYSE: CPQ), Micron Technology (NYSE: MU) and Intel's chief rival Advanced Micro Devices (NYSE: AMD) all said the same thing: the PC market is fine.

Likewise, Intel refused to characterize the third quarter as a bad one. Blame our unreasonably high expectations, not the performance, Bryant said in so many words.

Of course, setting expectations is part of corporate performance. Intel has evidently learned its lesson: 4 percent sequential growth in a holiday season is about as low of a bar as the company could set for itself.

Underpromise and overdeliver is a long-standing corporate cliche, but it's one that Intel in recent quarters had failed on more than one occasion. Maybe the chip giant has finally mastered it. 22GO

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