Through The Fly's Eyes: Intel Corp.

from Theflyonthewall.com











Good Gross Margin Guidance; Revenue Forecast Still Sloppy

Intel (INTC) reported flat average selling prices (ASPs) which is a good sign for the company versus week ASPs for quite some time. In addition, gross margins increased sequentially from 4Q06 to 1Q07, another good sign. Typically, investors would expect gross margins to drop in the first quarter.

• Revenue for 1Q07 hit the lower end of guidance, not too impressive
• Gross margin and revenue guidance for 2Q is weak, but it appears Intel is low-balling gross margins for 2Q, possibly due to start-up costs for 45 nanometer technology

Intel continues to focus on manufacturing scale and product introductions. In manufacturing, producing microprocessors at 65 nanometer technology and transitioning to 45 nanometer platforms by the end of 2007 continues to provide it with a competitive advantage. Intel will have six different applications running on five operating systems on this platform. This, plus product initiatives, is allowing Intel to build a wider and deeper moat to protect and expand its position in the microprocessor business.

As we blogged last week, Intel's stock appears to be washed out--with not too many sellers remaining. Historically, Intel's stock has done well with gross margin expansion, which appears ready to occur by year end.

There is not a big rush to get into this stock, but chip away during the spring and summer on market weakness for what appears to be a stronger fall and winter on the horizon for the chip giant.