Intel could delight or disappoint says Wall Street

THERE IS SOME difference of opinion on Wall Street currently about Chipzilla. Investment analysts are throwing their weight behind Intel but investors appear more cautious.

Morgan Stanley (MS) admits to a "positive bias on Intel" and, indeed, on semiconductors in general, owing to its belief that the semi supply chain has only just finished the 2nd largest inventory depletion in history. Now orders should come rolling in from customers desperate to stock up, say Morgan's tea leaves.

This massive restock is expected to take place in 2Q09 according to MS. But seeing as banks have been known to make the odd mistake regarding predictions recently, investors remain rightly skeptical. Many claim inventory depletion finished some time ago but no buying boom is in sight.

But the big boys of banking insist inventory restocking has yet to run its course and that all those doubting Thomases underestimate Chipzilla's revenues relative to its PC-OEM customers by a whopping 10 per cent.

The reasoning behind this is that historically, Intel revenues have tracked in line with the firm's customers within about three to four quarters of an inventory correction. But with mistrust and financial fogginess the way it is, this time investors are erring on the side of caution, with some financial beard-strokers modeling Intel's revenue recovery to only 90 per cent of its customers' by the end of 2009.

Of course Morgan S has been wrong before and the days of believing 22 year old investment bankers were God have come and gone. MS admits this, noting it is indeed true that OEM estimates could be too optimistic and that the supply chain may very well have learned to operate on much lower inventories.

Still, with many an arse-covering disclaimer, Morgan's fortune tellers say it is their firm belief that Intel will probably see higher levels of enterprise demand in the second half of this year, which would allow the firm to raise server MPU ASPs, resulting in higher than expected gross margins in the second half of the year.

The 'already-starting-to-get-too-much-hype' Windows 7 is another factor Morgan Stanley is apparently factoring in to its Intel recovery forecast, saying it will "provide a tailwind to growth," or ‘kick up the backside' in layman's terms.

Product announcements for MIDs and smartphones based on Moorestown, as well as ultra thin CULV platforms and Sodaville are also thought to be good news for Intel stock.

Poor old AMD, meanwhile, continues to flail about when it comes to high-end products, giving Intel yet another advantage.

On the other hand, Bank of America failed to be impressed by Intel's Nokia hook-up this week, proclaiming "the hype does not match reality". BoA said it was disappointed that so "little clarity" had been provided on what the tech effort would actually involve and what Nokia devices it would target.

"A nebulous reference to new mobile platforms," is obviously not enough to put BoA investors on cloud nine. The fact that Nokia also openly endorsed its current lineup of ARM-based silicon partners as suppliers for the foreseeable future, even while on the Intel press call, also caused some concern.

The view on Wall Street seems to be that joint development of MIDs on Intel architecture with a dollop of open source software collaboration and a side of HSPA/3G modem IP licensing is a jolly good thing, but that the lack of a coherent timetable for potential ramping of silicon shipments and general haziness on Intel's ability to penetrate Nokia as a silicon supplier into smart phones, is not.

In other words, don't believe the hype. Or do. Either way playing the market at the moment is more of a gamble than ever. µ