Bank of America believes Intel's (NASDAQ:INTC) stock has come under pressure in recent weeks amidst concerns that Intel has responded to AMD's aggressive price moves with a new (unscheduled) round of price cuts. The increase in HP's B/S and channel inventories have only served to exacerbate these concerns.
Firm believes concerns over additional price cuts overblown. Our checks suggest that Intel has not initiated any broad-based price cuts this quarter post the pre-scheduled Jan 21st price reductions. In fact, contrary to what had been reported in Digitimes, where a 5-10% reduction for two Intel processors was reported (Pentium D series 915 and 820), they believe the only cut initiated (~10%) was on the 915 on Mar 4th. They note that this was a pre-scheduled cut, and that perhaps more importantly, our checks still support no change in ASPs for premium Core 2 Duo desktop processors.
Jan SIA data confirms a stable pricing environment for Intel. The channel data points are also consistent with firm's analysis of the Jan SIA data for microprocessors (MPUs), which showed that pricing (on a 3-mo moving avg. basis) rose 3.7% M/M - the biggest rise in 18 months. Given the ASP declines in AMD processor ASPs, the uptick in pricing reported by the SIA was by definition driven solely by improving ASPs for Intel.
Concerns over HP's inventories - much ado about nothing? The focus on an increase in channel inventory (+1 week Y/Y to 5 weeks) at HP, attributable to the increase to the build of Vista-ready systems at qtr end, seems overblown. Importantly, an analysis of Jan and Feb motherboard and notebook shipments points to a seasonal qtr for PCs (and by extension MPUs), with little evidence of inventory build. This backdrop combined with stability in Intel ASP, suggests that Q1 sales are tracking to at least the mid-point of Intel's outlook for slightly below seasonal growth (-7%).
Notablecalls: This note should generate mild interest in the shares today, but I like it more in longer perpective, say 1-2 months. Intel has been enjoying torturing AMD of late and now has it just about where it likes AMD to be - beaten down. Now Intel can concentrate on its own gross margins and as the margins go, so does the stock.