* Intel Q4 results due on Jan. 14; AMD on Jan. 21
* Enterprise spending seen heating up
* Chinese holiday could prop up demand
(Adds analyst notes)
By Ian Sherr
SAN FRANCISCO, Jan 12 Intel Corp (INTC.O) is
again expected to surpass Wall Street forecasts when it kicks
off tech sector earnings this week, but analysts worry about a
stock sell-off if its 2010 outlook isn't rosy enough.
Chipmakers, whose products are found in everything from
personal computers and cars to smartphones, are emerging from
the industry's worst downturn in decades and are expected to
benefit from renewed spending on technology by corporations in
Analysts also point to the upcoming Chinese New Year
holiday in February -- a season of high spending in the world's
third largest economy -- as an indicator of robust end demand.
But some investors worry about a potential, short-lived
correction in semiconductor counters. Shares of Intel, which
gained more than 8 percent over the holiday quarter, have risen
30 percent over the past six months, bolstered by increased
consumer spending in the absence of corporate demand.
"We're on the cusp of an enterprise spend cycle this year.
We're on the cusp of improving consumer sentiment and consumer
spending for notebooks," said Wedbush Morgan analyst Patrick
Wang. But "Intel is cheap," he said, adding its valuation of
about 11 times forward earnings for 2010, minus cash, was a
historic low based on his data.
Intel, whose chips are found in more than three-quarters of
the world's PCs, is expected to earn 30 cents per share,
excluding items, up from 4 cents a year earlier, according to
Thomson Reuters I/B/E/S.
Distant runner-up Advanced Micro Devices Inc AMD.N is
expected to post a loss of 18 cents per share, excluding items,
up from the year-ago loss of 69 cents, as it works to pay down
debt and finish spinning off chip manufacturing arm
TD Ameritrade chief derivatives strategist Joe Kinahan said
that as of Monday's close, Intel's options prices are implying
about a 5 percent share price move in either direction post
earnings, based on current volatility levels.
"As Intel is the first tech bellwether in the earnings
season, there is also some extra anxiety and any type of
positive report can send the shares significantly to the
upside," he said.
LARGER INCOMES, ON SMALLER PRODUCTS
The holiday quarter is expected to show strong demand,
after bouts of factory closures and oversupply that plagued the
industry for nearly two years.
But investors will be watching average selling prices and
margins. Wall Street expects Intel to report a gross margin of
roughly 62 percent in the fourth quarter, versus just over 53
percent the same time the previous year.
One bright spot in the PC industry has been netbooks,
essentially no-frills mini-laptops. They sell for much less
than their more powerful laptop brethren, and some worry they
are replacing sales of costlier microprocessors.
Data from the Semiconductor Industry Association released
this month showed November chip sales rose 3.7 percent from
October, the ninth such month in a row.
Analyst sentiment on semiconductors is currently more
favorable than any other subsector in information technology,
according to Thomson Reuters StarMine. Analysts' median price
target on Intel is $25, according to Thomson Reuters I/B/E/S.
Some analysts warn there is a correction around the corner
for semiconductor stocks. The Philadelphia Semiconductor Index
.SOXX rose 37 percent in the second half of 2009.
"You've seen semis run in anticipation of good results, and
I think we'll see some selling on the news," Wedbush Morgan's
Semiconductor stocks were down 3.59 percent on Tuesday on
the Philadelphia Semiconductor Index, Broadpoint Amtech analyst
Doug Freedman said chip stocks were up 5 percent this month.
"You're waiting for earnings results that some people argue
are already priced into the stocks," he said, adding that the
sell-off is likely overdone.
Another bright spot is China, one of the world's strongest
PC markets. Indications are pointing to robust demand ahead of
the Chinese New Year holiday later this month, analysts say.
"Most recently we have heard about upside to desktop demand
from China," Auriga analyst Daniel Berenbaum said in a note,
upgrading Intel to "hold" from "sell" on Monday.
Berenbaum is cautious on the stock, however, expecting year
over year comparisons to peak in the first quarter, and
competition from mobile device chip designer ARM Holdings Plc
ARM.L to pick up. [ID:nN11173648]
But corporate budgets for the new year are already turning
into sales for big-name suppliers, and demand is once again
picking up. This could all contribute to Intel garnering some
of its highest corporate gross margins ever, possibly reaching
61 percent for 2010, Robert W. Baird analyst Tristan Gerra
"There's been a slow but steady recovery in real demand,
and the whole food chain is still trying to catch up," Gerra
(Additional reporting by Doris Frankel and Sinead Carew in New
York; editing by Edwin Chan, Richard Chang and Andre Grenon)