Intel Posts Profit, But Sees Consumer Market Weakness
As the markets continue to experience volatility, investors had some good news from Intel (Nasdaq: INTC) as the company released its third quarter earnings report. Profit increased to $2.1 billion which is a 12% increase from the same quarter a year ago. Perhaps more importantly, Intel suggested that its fourth quarter numbers would also be strong. The company said that although there are some signs that the current economic slump is affecting sales, it is too early to tell just how strongly this might affect sales. Even as they told the market it was too early to tell how the country's economic difficulties would affect business, they predicted fourth quarter sales in the $10.1 to $10.9 billion range.
Indeed, Intel CEO Paul Otellini told analysts that consumer sales have been soft in the early going this quarter and said "It's clear that the financial crisis is creating some signs of stress that may impact our business." In light of that, some may think that his fourth quarter guidance may be somewhat optimistic. However, in this market, any good news is being seized upon and highlighted. It is widely expected that Intel's corporate customers, as many have already announced, will be implementing sharp spending controls for the coming year which may translate to lower corporate sales for Intel powered PC's. So, some may wonder where Intel's projected numbers will come from if both consumer and corporate customers are pulling back.
In after hours trading on Tuesday, Intel rose $0.43 to $16.40 per share. As recently as mid-August, Intel was trading at over $24 per share. With its current price and dividend, Intel offers an annual yield of about 3.4%. Between the yield and the 33% discount to its August share price, Intel may seem attractively priced for investors looking for a safe place to park their money for a year or two. However, if the company's fourth quarter guidance does prove overly rosy, the company's shares will certainly see further weakness. Even so, Intel looks to be in a strong position to weather a recession.
That's right, we said recession. Economists are now predicting that US economic growth may be negative for the next two quarters at a minimum with some estimates ranging as low as 1.5%- 2% reductions in the nation's output. That's a pretty hefty decline, and if it proves true, it's hard to see the market turning broadly positive during that period. We think that for the long term outlook, there are many attractively priced equities already, Intel among them. However, even these issues may see further declines if the economy as a whole contracts as much as some have indicated. An aggressive long-term investor would take advantage of the current market weakness and accumulate quality shares strongly over the next six months.
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