Dell's results seen as bad news for Intel

Dell's results seen as bad news for Intel

SAN FRANCISCO—Disappointing first quarter results and a lower-than-expected second quarter sales target by PC supplier Dell Inc. is bad news for Intel Corp., which has forecast growth above the seasonal average for the rest of the year, according to a Wall Street analyst.

In a conference call with analysts following its first quarter report, Dell (Round Rock, Texas) indicated that PC demand is slowing, tablets and smartphones are cannibalizing notebook sales and customers are delaying IT spending, according to Christopher Danely, an analyst at JP Morgan. In a report circulated late Tuesday (May 22), Danely said Dell's guidance and resulting commentary are a negative data point for Intel, which is roughly 85 percent exposed to the PC end market and derives about 15 percent of its revenue from Dell.

"Intel has in our opinion some of the most aggressive guidance in all of technology, with the company expecting above-seasonal growth every quarter for the rest of 2012 and also above-seasonal revenue growth in 2013, despite several large OEMs such as Cisco, Dell, SAP and Cognizant all pointing to slowing demand," Danely wrote. "We believe the cautious demand environment coupled with lack of exposure to smartphones and tablets puts Intel’s guidance at risk."

Dell reported sales of $14.4 billion for its first quarter of 2013, down 4 percent from the year-ago period. The company reported a net income in accordance with generally accepted accounting principles (GAAP) of $635 million, down 33 percent from the year-ago quarter. The company's GAAP earnings per share, 36 cents, was down 27 percent from the year-ago quarter.

Dell said it expects sales for the current quarter to increase by 2 to 4 percent from fiscal first quarter levels, short of consensus analysts' expectations.

Intel has said it expects its second quarter sales to increase to between $13.1 billion and $14.1 billion, up 2 to 9 percent compared to the first quarter. Danely estimates the company's sales for 2012 will be $56.6 billion, up about 5 percent from 2011.

Danely said Intel is one of the few semiconductor companies whose margins are close to peak and whose growth spending is expecting to outpace sales growth this year. He called Intel's consensus estimates among the most at risk for the year of any semiconductor company.

Despite the negative data from Dell, Danely maintained JP Morgan's "neutral" rating and $26 price target on Intel's stock. Intel traded at $35.18 in late morning trading Wednesday, down 3 percent from Tuesday's close.


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