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Thursday, January 14, 2010

Intel Posts Explosive Earnings Up 875%: Continues Massive Momentum

Intel posted a fourth-quarter net income of $2.3 billion, up 875% over its report last year at this time. Record revenues came in at $10.6 billion, up 28% year over year. Further the company yet again boosted its revenue guidance saying it expects first quarter revenue of $9.30 billion to $10.10 billion. The consensus estimate had been for revenue of $9.26 billion for the quarter ending March 31, 2010.

The impressive swing in net income was about 10 times greater than the $234 million (4 cents per share) that the firm reported last year on January 15.

We've continued to watch in amazement as Intel seemed completely unphased by the economic downturn of 2008 and 2009:

1. January 2009: Intel beats its Q4 2008 estimates amidst negative headlines everywhere else.

2. April 2009: Intel declares, "We believe PC sales bottomed out during the first quarter and that the industry is returning to normal seasonal patterns." In the first-quarter, the firm's profit far exceeded analyst views.

3. July 2009: Still swimming upstream, Intel posts its largest quarterly sequential increase in sales since 1988, further boosts its guidance for Q3 in the face of naysayers calling for lackluster Q3 growth.

4. Oct 2009: Cisco joins Intel in declaring that "Recovery Is Gaining Momentum."

And just prior to yesterday's Intel announcement you'll remember that analyst firm IDC declared that in Q4 2009, the U.S. PC "market exploded higher."


  1. GNE,

    So what explains a stock dropping after such good earnings report?

  2. Bill,

    Buy on the rumor, sell on the news... ;-) Long term look for a upward trend...

  3. GNE,

    Thanks for the response. Now, what do you make of JP Morgan's report which seemed to trigger the sell off today because of concerns that credit card and mortgage losses will continue, not to mention the big concern over commercial real estate deliquencies. Is this, as they say, the "next leg down" in the economy or just a temporary blip?

  4. Bill,

    Mostly overlooked today was the good news that the NY Empire index continues to show significant growth in that region. As you know, I believe the hype on mortgage losses continues to be way overblown particularly because rates continue so low that as those are reset or refi'ed consumers and businesses are freed to spend/invest rather than pay interest. On the demand side, provided that the big banks continue to originate loans that produce good earnings (as reported by JPM today) any non-performing loans will fade into insignificance. Doomsters have now been calling for next wave of alt-a resets and another leg down for almost a year now... perhaps I am blind, but I just don't see it.

    Just got a note from a reader (you may remember her Libor indexed loan reset down 6 months ago and she was quite happy), well guess what? her six month adjustment just went down again... probably need to write another story about that good news.

    Here is the earlier story about her...

  5. I suppose I would be less concerned if the warnings were coming from habitual doomsters, but when it comes from the CEO of JP Morgan (Daimon), which is the best run bank in the US, I think it is more troublesome. However, if the job market improves, then perhaps the worries over credit card losses and other loans will fade.

  6. Bill,

    The details of their Card services "concerns":

    "The managed provision for credit losses was $4.2 billion, compared with $4.0 billion in the prior year and $5.0 billion in the prior quarter. The current-quarter provision was driven by continued high levels of charge-offs and an addition of $400 million to the allowance for loan losses, reflecting continued weakness in the credit environment. The managed net charge-off rate for the quarter was 9.33%, up from 5.56% in the prior year and down from 10.30% in the prior quarter. The current-quarter net charge-off rate included a benefit of approximately 60 basis points from a payment holiday program offered in the second quarter of 2009. The 30-day managed delinquency rate was 6.28%, up from 4.97% in the prior year and 5.99% in the prior quarter. Excluding the impact of the Washington Mutual transaction, the managed net charge-off rate for the fourth quarter was 8.64%, and the 30-day delinquency rate was 5.52%."

    Although these charge offs are high. They are not severe particularly when you also note that JPMC: "Continued to focus on sound lending and efforts to prevent foreclosures and extended more than $600 billion in new credit during 2009 to consumers, corporations, small businesses, municipalities and non-profits (including more than 18 million card, home equity, mortgage, auto and education loans)"

    If say even 5-10% of that $600B in *new* credit turns delinquent like the older paper may be, the firm is still in fine shape. Given the more stringent lending practice environment, I'd expect that the $600B in new paper is based sounder principals than past operations.

    The company declared a cash dividend of $0.05 per share on the results, in line with previous quarters. When you look at the firm's total balance sheet and other lines of business, I'd expect that cash dividend will increase substantially in 2010 quarters. (a ramp to 25c a quarter in q4 would not surprise me)


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