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Intel's stock likely to remain 'range bound' in '06, says analyst

Posted by iMark - 2006-01-21

SAN FRANCISCO — Intel Corp.'s stock is likely to remain "range bound," trading at between $23 and $29 in 2006, with margins approaching a historical peak and the company likely to continue experiencing market share losses to competitor Advanced Micro Devices (AMD), according to a semiconductor industry analyst.

In a research note issued Friday (Jan. 13), Michael McConnell, semiconductor industry analyst at Pacific Crest Securities, said his company expects Intel to report fourth quarter 2005 revenue of roughly $10.5 billion, up 5 percent sequentially and in the middle of Intel's fourth quarter guidance, which calls for revenue to be between $10.4 billion and $10.6 billion. Pacific Crests expects Intel to report earnings-per-share of 42 cents for the quarter, slightly lower than mean expectation of analysts who publish on First Call, 43 cents.

Intel is scheduled to report its fourth quarter results following the close of the market Jan. 17.

McConnell said Intel's gross margin — historically the primary driver of the stock's performance — is approaching its historical peak for this decade of 63.9 percent. The likelihood for incremental improvement to the gross margin in 2006 is low, he said, as 300-millimeter production expands compared with production at fully depreciated 200 mm factories. McConnell estimates that Intel's depreciation will likely increase by 8 percent year-over-year to $4.7 billion, representing the first year-over-year increase for Intel since 2002.

McConnell noted recent PC supply-chain surveys indicate a rising demand for AMD processors and that the company continues to benefit from shortages of Intel-compliant chipsets and motherboards. Pacific Crest expects improvements in the supply of chipsets and motherboards from third-party vendors to be gradual during the first half of the year. Intel's internal chipset and motherboard constraints should temper revenue growth, McConnell said in the research note.

McConnell said feedback on Intel's new Napa mobile computing platform has been "extremely positive," and that Pacific Crest expects about 2.9 million platforms to ship during the first quarter at an average selling price of $220.

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