Intel Earnings Nudge Semiconductor Stocks Forward


Intel's record fourth-quarter performance and rosy revenue forecast for this year nudged semiconductor stocks forward Friday morning.

Semiconductor stocks, which have had a particularly strong performance over the past four weeks -- rising 8.3% to 406.03 on the Philadelphia Semiconductor Index -- climbed even higher following the financial results of bellwether chip giant Intel. But despite the robust results that beat Wall Street's estimates, Intel's revenue growth is expected to slow next year to 10%, compared with its 24% jump this year.

SOX Index
SOX Index

Intel's anticipated slow down in growth this year mirrors the industry at large, according to analysts. Ross Seymore, a Deutsche Bank Equity Research analyst, recently forecast the industry's revenue growth will cool off to 5% for the year, versus the 30% seen last year. And the closely followed Semiconductor Industry Association is expressing similar caution, noting in its 2010 to 2012 forecast that last year's 32.8% revenue growth was expected to be followed by 6% growth this year and a meager 3.4% next year.

But for now, investors apparently are pleased with the way the industry is heading, bidding up shares of a number of major chip players. Applied Materials (AMAT), Marvell Technology Group (MRVL), Micron Technology (MU), and Texas Instruments (TXN) were all up in early morning trading.

Asian Chip Makers Also Got Boost From Intel

Chip companies in Europe and Japan also received an indirect boost from Intel's results, according to a Reuters report. UK chip designer ARM hit a 10-year high as it rose 6.5%, while Tokyo Electron climbed 3.2% and Sumco a scant 0.7%.

While the Philadelphia Semiconductor Index was also up in morning trading, rising 0.87% to 443.64, Intel, however, was not. The chip giant's shares were down 1.2% to $21.04 a share. Investors may be taking a bearish approach to Intel's plans to increase capital expenditures by 72% to $9 billion this year. Credit Suisse analyst John Pitzer, however, believes the plan to increase capital spending is a good sign.

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"Increased capex reflects strong expected core demand . . . and optimism that non-core [markets] in 2012 will be meaningful contributors," Pitzer said in a research note. "We view the uptick in spending as a confidence signal, and consistent with our view that industry supply growth is becoming more difficult to add; bears will probably argue a position of weakness."

Pitzer raised his revenue and earnings estimates for Intel to $47.7 billion from $45.8 billion for 2011 and earnings per share to $2.15 from $1.95. His price target, however, remains at $28 a share.

In sizing up the bottom line, Pitzer noted in his report: "Tablet overhang is clearly dampening multiple[s] despite what continues to be better than expected results. INTC has gone from cyclical back to growth -- EPS [estimates] are now well north of $2.00 vs. prior peak of $1.57 in 2000, a level most thought impossible when we first suggested in late 2008. . . . Our Stance: Investors underappreciated the importance of INTC's widening [manufacturing] lead, ability to architect lower power in future design, and expertise in software compatibility and ecosystem -- Windows on ARM will be the first true comparison of power & performance on a truly common platform -- INTC should welcome it."

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