INTC is a buy at $15.50

Intel close $15.50, P/E 12.35 today. Analysts have been lowering their earnings estimates to $0.38/share current qtr and $1.25/share for the year. For next year, average analyst estimates is $1.32/share. I’m not skeptical about the current 08 estimates, but I think they may have underestimated 2009’s numbers. In order to trade this idea, I will begin accumulating INTC at this price level. I should start buying 10% of my target quantity now at $15.50, and purchase the rest in 10% chunks over the next few months.

So why do I think Intel will do better than analysts was led to believe? Economic recovery and the upcoming Core i7 (codenamed Nehalem) processor. Analysts, especially those tach analysts rarely able to see past the rearview mirror. They can’t see what’s happing right now, and certainly not able to see what’s happing ahead. They have some intern collect some numbers and plug those into their model, which is nothing more than taking the earnings Intel guided them and add or subtract a small number from it, to come up with their estimates. 

Intel analysts: bad economic…consumers feel poor…no new computers…corporates not profitable…cut IT budget…no computer upgrades…lower Inter earnings estimate. 

Me: bad economic…workers layoff…corporates need productivity boost…invest in IT automation…new computers…Intel profits.

I believe economic is going to see signs of recovery by mid 2009 and things are going to turn around 2010. Companies, smart ones anyway, usually up their investment in productivity-boosting-money-saving IT infaracture in order to get a leg-up on compitiators. There will be a strong upgrade cycle in 2009 driven by economic recory and Core i7. When Intel introduced their Core 2 series of CPUs, they regain lost market shares and mindshares from AMD, and bought Intel time to catch up and blow away AMD in process architecture. The Core i7 is a first Intel architecture to incorporate embeded memory controler and multiple cores on a single CPU die and elimiating the last architecture advantages AMD may have over Intel. Core i7 is designed to help multi-threaded performance scaling. New systems with Core i7 can replace several older Core 2 systems while using less energy. For large datacenters, hardware usually represents a small percentage of the total cost. Electricity and human cost are usually the number one and number two cost in datacenter operations. Sun Microsystem’s UltraSparc T1 and upcoming Rock processors also marketed as multi-threaded performance scaling and energy saving CPU and gotten a lot of attention in the server market. Their are no benchmark for Core i7 I can find, but just from the specs it looks like Core i7 will pack enough punch to spark a new wave of server upgrade.

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