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Stock Analyst Update

Despite Limited Downside, Intel Shares Still Aren't Compelling

The light at the end of the tunnel is still nowhere in sight for the chip giant.


What Happened?
Tuesday evening, Intel (INTC) reported fourth-quarter profits of $0.38 per share, a penny ahead of consensus earnings expectations. The chip giant's sales and gross margins were, however, roughly in line with the revised guidance the firm gave when it warned investors of slower-than-expected growth back in December. The firm plans to increase its capital spending from $6.7 billion to $7.5 billion in 2001, but it expects a sharp decline in both sales and margins in its March-ending quarter.

What It Means for Investors
After Intel's quarterly conference call, we still find no compelling reason to consider the stock's sharp decline as a buying opportunity. Fourth-quarter results were poor, but not a surprise given the anemic demand for PCs during the holiday shopping season. We were pleased, however, that the firm used its depressed share price to buy back more than $1 billion in stock in the quarter, and we agree with management's commitment to spend heavily on capital equipment in 2001 despite the uncertain economic outlook. These investments will allow the firm to produce its chips even more efficiently and ultimately emerge out of this slump stronger than before.

Jeremy Lopez does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.