January 15, 2004
Intel Beats Back Tech’s Advance

As suggested back in October – ‘Book On Intel’s Impressive Quarter Being Repeated in 4Q03’ – Intel reported strong financial results for 4Q03.  The company’s solid results – depending on how you account for taxes the company beat consensus revenue and earnings targets – were made possible by both seasonal forces as well as the turnaround in tech land.  However, before reading too much into headlines that read ‘Intel reports record quarterly revenues’, it is worth remembering that Intel’s profits are nowhere near record territory.  Rather, Intel managed to piece together $2.17 billion in income in the fourth quarter of 2003 -- or nearly 1 billion dollars less than the company said it earned in the second quarter of 2000. 

* Despite a goodwill write-down Intel padded equity by nearly $500 million in 4Q03 as compared to 3Q03.  Thus, after 11 challenging quarters Intel’s net equity now sits a record high ($141 million above the level seen for the quarter ended September, 2000).

Cautious Outlook For An Overvalued Stock

Despite ending 2003 on a strong note, Intel expects capital expenditures in 2004 to be in the $3.6 billion to $4.0 billion range versus $3.6 billion in 2003 (some analysts expected a higher capex figure).   When combining this news with the fact that the company’s financial outlook for 1Q04 did not surprise on the upside, it is difficult to speculate that Intel’s stock price has more upside potential in the near term (a lot may depend on whether or not the company setting the bar low enough to leap over at some later point in time, and/or how entrenched the post-Christmas hangover is for consumers). 

While a less than fantastic outlook from a leader like Intel may be enough to stall the rally in many technology issues, it is worth remembering that tech stock prices may only seriously falter when, and if, liquidity flows into U.S. equities cool.

Intel’s basic valuations have grown more strongly than corporate performance over the last 3-quarters.

a