Intel Looks To Stronger Year Ahead

We are reiterating our Hold rating on the shares of Intel Corp. (INTC), the world’s largest manufacturer of semiconductor products.

September quarter revenue was in-line with the consensus, while the EPS exceeded. Forward guidance is for a revenue decline of -1% to a revenue increase of 7% in the fourth quarter. Since the second half of the year is usually stronger than the first, revenue growth may be expected.

Intel is trading at 9.5x our 2008 EPS estimate of $1.67. The company is solidifying its position in the higher-end server market, which is a key advantage. 2008 could be a challenging year for margin expansion, since launch activity related to the Nehalem microarchitecture is expected to continue through November.

However, we expect the much-improved performance of this platform coupled with the production ramp at the 45nm node to spur further market share gains in 2009. Although the company has a relatively low exposure to the U.S., the situation here is triggering off uncertainties in other markets, including Asia.

We are lowering our target price to $22 (13.2x P/E). The TTM ROE was 21.7%, up 1% compared to the end of the previous quarter. The profit margin, asset turnover and equity multiplier all contributed to the increase.

Sejuti Banerjea contributed to the report.

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