The Wall Street Journal-20080115-Ahead of the Tape
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Ahead of the Tape
Will Intel
Put an End
To Chip Jitters?
Intel might settle a little controversy today and stop its stock's roller-coaster in the process.
The world's No. 1 computer-chip maker reports fourth-quarter earnings after the closing bell. Its results are generally expected to be strong, continuing its recent recovery against flailing rival Advanced Micro Devices. Last year's healthy notebook demand apparently offset flagging appetite for desktop computers. But investors will mainly be hanging on the tech bellwether's outlook for 2008. One key question will be whether inventories of personal computers -- big users of chips -- are piling up amid slowing demand.
When J.P. Morgan analyst Christopher Danely downgraded Intel shares to "neutral" earlier this year -- triggering a one-day selloff of 8% -- he noted unexpectedly low PC orders by Taiwanese PC maker Acer and European electronics retailer DSG. In a note yesterday, Pacific Crest Securities analyst Michael McConnell pointed to rising desktop computer inventories at Dell.
World Semiconductor Trade Statistics data show global chip inventory up 17% in November from a year ago, compared with a long-term average of 10%. This makes an inventory correction in the first half of 2008 a "high probability," says Mr. Danely.
Bear Stearns analysts, on the other hand, call worries about PC demand "overblown." Some analysts point out that notebooks are in demand in China and other parts of the world, which can offset any soft U.S. demand. International Business Machines' strong preliminary earnings numbers yesterday strengthened the optimist case and boosted Intel's shares.
But Intel is still down more than 13% this year after a blockbuster 2007. Given all of the signs pointing to a slowing economy, don't be surprised if it disappoints.
Look Across the Pond
For a Bank Outlook
As U.S. banks offer up more confessionals, the saga of a little U.K. mortgage lender named Northern Rock is a reminder the mortgage meltdown is a global problem and bitter battles could be on the horizon.
In September, Northern Rock suffered the U.K.'s first bank run in more than a century. It faces a decisive moment today, when shareholders gather to vote on initiatives -- put forth by two hedge funds controlling 18% of the shares -- that would allow them to block the sale of all or part of the company to a group of private buyers. The buyers, led by Richard Branson's Virgin Group, would take a 55% stake in Northern Rock but value the shares at a deep discount to their current price.
The hedge funds -- SRM Global Master Fund and RAB Special Situations -- don't want the discount. They're pushing to sell a smaller stake to another investment firm at a higher price. The board favors Virgin and says the funds are limiting its maneuvering room. The funds say they are "trying to be constructive." If the parties can't agree soon, the government might nationalize Northern Rock.
The U.K. Treasury has recruited Ron Sandler, a former chief executive at Lloyd's insurance market, to lead the bank if the government steps in. The U.K.'s Chancellor of the Exchequer Alistair Darling, said last week that shareholders bought the shares knowing well the bank's troubles. In the end, they could end up with nothing.
-- Margot Patrick
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