Why Intel's earnings matter

Posted by Frances Horodelski on October 14, 2008

While the world has been focused on the credit crisis and the solutions proposed by global central bankers and their governments, Intel's third-quarter earnings will not go unnoticed.  Why?  Because as the largest semiconductor maker in the world, Intel will provide an inside look at what's really going on in the American economy.

The semiconductor industry had sales in excess of $255 billion US in 2007 – Intel contributed almost 15% of those revenues selling semiconductors for use in everything from personal computers, telecommunications, industrial automation and even the military.  More than 80 percent of its sales are outside of the U.S., so Intel's numbers also provide insight into the global economy.  As well, the company tends to be one of the first big technology bellwethers to report, thereby providing a glimpse as to what’s happening on the technology front.

For reference, at the time of the company’s last update in September, it was relatively upbeat on its revenue outlook providing an estimate of $10 to $10.6 billion versus $10 billion last year and almost $9.5 billion in the company’s second quarter.  Analysts are estimating earnings per share at $0.34 versus $0.31 last year.  Analysts will also be focusing on gross margins which were soft in the second quarter but are expected to have stabilized in the third.  New products, including the next generation desktop processor, will also be a focus.  And finally, the outlook for both the fourth quarter and 2009 will be important for sentiment.

The stock, which I own, is down more than 40% from its highs and currently carries a multiple of 12.8 times 2008's consensus estimate of $1.25.  That's back to levels last seen in the early 1990s.  Tonight's results will show whether it is justified or not.

(Intel's third-quarter profit topped Wall Street estimates, rising 12 percent to $2 billion or 35 cents a share on revenue of $10.22 billion. The company also warned that fourth-quarter sales could come in lighter than expected given the global economic slowdown. It expects fourth-quarter sales of up to $10.9 billion, slightly higher than Street forecasts.)

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