Intelís Investors Turn Extremely Bearish Ahead of its Quarter Earnings Reports on Weak PC Outlook

Witawat (Ed) Wijaranakula, Ph.D.
Tue Jul 7, 2015

Intel [NASDAQ:INTC] plunged 3.16% on Tuesday, to an intraday low of $29.09 a share and bounced back to close at $29.90 a share, or the 38.2% Fibonacci retracement level, after its rival chipmaker Advanced Micro Devices [NASDAQ:AMD] lowered its revenue estimate for the second quarter ended June 27, citing the demand for personal computers was weaker-than-expected. The negative news about the PC market came on the heels of the research note on Monday from boutique research house BlueFin Research Partners, warning Intel investors to lighten their positions as the research firm believes that Intel will cut its chip output and more negative news will come this summer. 

According to the recent Gartner second quarter IT spending forecast, the release of Windows 10 at the end of July could lead to a surge in PC sales until early 2016, but this wonít be enough to reverse the continued decline of the wider PC market.

Intelís share price has nosedived about 15% as investors have headed towards the exits since June 1, after the company announced that they will acquire Altera [NASDAQ:ALTR] for $16.7 billion in cash. In a cost cutting move, Intel quietly sent out layoff letters to an undisclosed number of their employees in mid-June as a poor outlook for the PC industry in 2015 still persists.

Last week, Intel announced that President Renee James will step down in January 2016 after 25 years with the firm. According to Citigroup, a departure of Ms. James is a good thing as the lack of growth and low profitability of Intelís software business was under her leadership.

In the first-quarter ended March 2015, Intel reported total revenues of $12.78 billion, compared with $12.76 billion the same quarter last year, and non-GAAP earnings of $0.41 per diluted share, compared with $0.38 per diluted share in the first quarter of 2014. Analystsí expectations were $0.41 per share on revenues of $12.9 billion. 

Client Computing Group revenue was $7.4 billion, down 8% year-over-year and Data Center Group (DCG) revenue was $3.7 billion, up 19% year-over-year. Internet of Things (IoT) Group revenue was $533 million, up 11% year-over-year while the Software and Services operating segments revenue was $534 million, down 3% year-over-year.

Looking forward, Intel sees revenue of $13.2 billion, plus or minus $500 million, in the second-quarter ending in June 2015. For the full year 2015, revenue outlook is approximately flat.

From our technical viewpoint, INTC has been trading in a symmetrical triangle chart pattern, in the range between $34.71 and $29.10 a share, since October 2014. The 200-day SMA over the 50-day SMA death cross emerged in March and the stock has been pulled back sharply to the $29.10 support level, twice, as investors are skeptical about Intelís future growth strategies. 

A head and shoulders chart pattern has emerged, as investors are extremely bearish on Intelís PC and software business outlooks. The stock just broke down through $29.84 a share, or the 38.2% Fibonacci retracement level, and bounced back to close at the two and a half year trendline support. In the event of a long-term trendline support breakdown, the stock could move downward towards $27.51 a share, or the 50% Fibonacci retracement level.

According to Yahoo Finance, the stock has a one-year price target of $34.37 a share. Intel will release its second-quarter 2015 earnings report on July 15. Wall Street is expecting revenues of $13.15 billion, down 4.9% year-on-year, and an EPS of $0.51 per share, down 7.3% year-on-year.

Disclosure: No Position in INTC or any other stocks mentioned.

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