Intel Drops On Supply Issues, Fundamental Drivers Are Main Concern

Intel’s (NASDAQ:INTC) stock dropped by about 4% yesterday as the company lowered its Q4 2011 outlook. Intel mentioned that it now expects a revenue in the range of $13.4 billion to $14 billion, about $1 billion lower than its earlier expectations for the fourth quarter. ^[1] The culprit is the supply shortage of hard disk drives resulting from floods in Thailand. The PC makers are appropriately managing their inventory, thereby buying fewer microprocessors. This will not only affect Intel, but also its rival AMD (NYSE:AMD) and graphics maker Nvidia (NASDAQ:NVDA).

See our full analysis for Intel

The supply and demand mismatch is likely to spread through Q1 of 2012 and stabilize towards mid of next year. But is this something that investors should worry about?

For value investors, the fundamental stock drivers and how they are likely to trend is of utmost importance. Intel’s worry is not the supply shortage, but rather potential PC cannibalization from tablets and likely entry of ARM architecture based players in the PC microprocessor market. In such a situation, Intel could lose some money due to slowdown in PC sales and loss of market share.

Although Intel has repeatedly stated that emerging markets are supporting PC growth, it is inevitable for the company to hedge their risk by investing more in mobile market and continuing to keep their crown in servers. We are in process of reviewing our pricing model in light of potential threat from ARM and will update it soon.

Our price estimate of $29 for Intel, implies a premium of almost 20% to the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Intel’s Fourth-Quarter Revenue to Be Below Expectations Due to Hard Disk Drive Supply Shortages, Intel Press Release, Dec 12 2011 [↩]