Thursday, May 19, 2011

The Intel Treadmill

It’s been a busy week for Intel shareholders. As noted by Eric Savitz this morning, Goldman Sachs semiconductor analyst Jim Covello issued a sell recommendation - citing the usual concerns of overcapacity, tablet cannabilization and, of course, penetration in their primary market by ARM processors.

If you have been following Intel for any length of time you know that these are not new revelations.

The sell recommendation was also accompanied by a negative view of two semiconductor capital equipment companies, Applied Materials and KLA-Tencor. Lam Research, on the other hand, received an upgrade because of their exposure to the memory business.

Not to be left out, CNBC's Fast Money group (yeah, that's what it is) chimed in with their views:

Fast Money it is….

All of this chatter comes on the heels of yesterday's Investor Meeting. For anyone interested in Intel I would strongly suggest a review of the materials presented . You can find them here (a painless, free registration may be required ):

When scrolling through Stacy Smith's presentation you will see, starting at slide #26, their assessment of the market. Noteworthy, and management has mentioned on their last few earnings calls, is the growth they have been seeing in the emerging markets. They've even gone as far to mention persistent under-estimation of that growth by the analytical community. Be on the lookout for even more surprises on that front.

So, is Goldman Sachs right and is the industry heading for a downward? During this quarter's confessionals pushouts and cancellations were mentioned by a few of the capital equipment companies.

Some of this can be attributed to the disaster that took place in Japan. Overall though, these dislocations were noted as short term problems. The equipment companies I speak with are leaning decidedly toward the bullish side of the ledger after these short term issues are resolved.

Having followed this sector for many years I don't find it surprising to see and hear all this mid-quarter noise. We're in that window between earnings reports and a lot of the analytical banter is pre-positioning for the next leg up. Given that semi-related shares have been performing well a breather is to be expected. For opportunistic types, any weakness that comes from this "noise" should be welcomed with open arms.

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