'Buy' is majority judgment on Intel

Electronic News, April 27, 1992 by Dolores Kreck

Though Intel is getting mixed reviews on Wall Street because of the whirlwind of confusion surrounding the company's litigation, "buys" are still in the majority.

Mike Gumport of Shearson Lehman, however, rates the company's equity a "hold" because he expects the judgment to go against Intel.

While the analyst sees pressures on sales and earnings, "The real slammer," he says, "will come when the price of 486DXs drops once Intel loses litigation and new competition enters the market."

Mr. Gumport suggests that investors may want to buy Intel at the $46 to $50 price "on the off chance the company beats the odds with the microcode fight." The stock could rebound to $75 as Cyrix is temporarily forgotten.

"We think a 15 percent to 20 percent chance remains that Intel prevails on microcode -- plus 25 percent odds that, despite a microcode loss, it wins the mask work protection and delays AMD. Intel at $50 may be no bargain."

However, Mr. Gumport thinks that, most likely, "Intel will lose the AMD microcode fight and face a tough Cyrix. An AMD microcode vicotory plus a relationship between Cyrix and Texas Instruments -- or another equally aggressive partner -- would be serious negatives for Intel. Potential margin pressure is hart to gauge; at least likely flat EPS limits downside."

Mr. Gumport noted the company's disappointing results as he lowered his projections for the full 1992 and 1993 years, pointing out that "Intel's flat EPS contrasts with strength at distributors and competitors.

"Sales suffer from new competition, and margins will suffer later in 2Q 92 when 386SL prices drop 5 percent, 486SX prices drop over 10 percent and 386SX/DX prices drop 35 percent.

Reduced share and slower new product acceptance lead Mr. Gumport to project EPS of $3.90 for 1992, down from his earlier $4.20; for 1993, he is putting the EPS at $3.75 instead of $4.25.

His EPS projections include good 2Q 91 growth and limited near-term margin pressure.

Though Intel says 2Q 92 R&D and SG&A sequential growth are being held at 3 to 5 percent, Mr. Gumport notes goss margins may drop over 3 points and he is more concerned about margin pressure later in 1992.

Meanwhile, Andy Neff of Bear, Stearns views the arbitrator's recent ruling in the Intel/Advanced Micro Devices dispute as "very favorable for Intel because of what the arbitrator did not do -- he did not transfer technology nor did he award significant damages.

"Some sources appear to think AMD got the edge in the arbitration. We believe this missed the point, that nothing really changed as a result of this finding, since AMD was already shipping and Intel's P/E multiple did not assume that AMD would get shut down in the 386 business.

"Going forward," says Mr. Neff, "the key point is that we believe Intel has a stronger product and customer position.

"We continue to recommend purchase of Intel shares."

Tom Thornhill of Montgomery Securities has a similar opinion and "believes that Intel will recapture investor interest as the company increases its mix of second-wave, shipments and the smoke clears regarding AMD's near-term momentum from the conversion of its customer base from 286-based machines to the AM386.

"In addition," says Mr. Thornhill, "the broad range of new processor speeds, voltage and package options Intel is planning to introduce in 1992 will leave few opening for competitors such as the AMD in the 486 market.

"We will continue to rate Intel an 'aggresive buy' due to the firm's near-term strategy to position its 486 processor family so that 486-base will offer the best economic choice for new system purchases."