Intel fights with lower sales
PC sales have been high since the beginning of the pandemic because people needed laptops to work from home, and investors are concerned that the trend is changing, but Intel said on Thursday that demand for PCs remains high.
The problem with PC sales was a lack of other chips required to build a complete computer, not a lack of Intel CPUs, and Intel CEO Pat Gelsinger mentioned some specific types of circuits that were in short supply in an interview.
“It’s referred to as a match set.” “We have the CPU, but you don’t have the LCD or Wi-Fi,” Gelsinger explained. “Some of the power chips and some of the networking or Ethernet chips are particularly problematic in data centers.”
Gelsinger stated that we are currently in the “worst of” the shortage and that it will improve quarter by quarter, but that the semiconductor shortage will last until 2023.
Back to the same drowsy PC routine?
One question for semiconductor or electronics investors is whether the pandemic-driven PC boom, which reached 55 percent growth in the first quarter of 2021, established a new floor and path for growth for the category, or if it will revert to being a sleepy low- or no-growth business, as it has been for the past decade.
Because of the chip shortage, it is more difficult to assess because manufacturers may decide to stockpile when parts are available rather than pay up when faced with longer lead times or more expensive components.
In an interview Gelsinger admitted that he had heard about PC manufacturers, known as OEMs, stockpiling inventory, but he explained that this was due to a backlog of orders from manufacturers who were unable to obtain power controllers or other parts — the “match set” issue.
Analysts began to worry about “peak PC” during the summer, as sales appeared to have slowed and shortages began to ease. According to market researcher IDC, third-quarter sales in the United States were the lowest since before the pandemic.
Intel is still optimistic. PC sales are on a new trajectory, owing to the pandemic. “We believe the PC business is now simply larger structurally.” “It’s now a million-unit-a-day business,” he said. According to IDC, 347 million PCs will be shipped in 2021.
“In the PC industry, I believe we’ll feel a lot better in the second half of next year about PCs and mobile devices.” But we still have a lot of supply issues to work out before we can get to the other side of these extremely painful issues.”
According to one estimate, Intel provides nearly 80% of processors for the home PC market. It is also heavily investing in becoming a foundry, or a factory for chips designed by other companies. As foundry capacity around the world remains constrained, Gelsinger said it was relatively easy to sign up new customers, such as the US government.
“Right now, it’s so simple to show up and say, ‘I have leadership process technology,’ if you can persuade them.” And I’m ready to commit capacity to you,” Gelsinger said. “It really is that easy.”
Analysts are short-selling IBM
The founder and managing partner of Kynikos Associates discussed the short position. Later, he said that he has been short IBM since mid-2019 and had previously bet against the company from 2014 to 2016.
On Monday afternoon, IBM shares were down about 1.6 percent to around $142 apiece. The stock opened slightly lower on Monday, but had been trading in positive territory before a quick drop.
Management can use pro forma accounting to show projections for a company based on their expectations, or to show how a company’s financials might have looked in previous quarters under conditions they consider normal going forward, such as including the results of a newly acquired division.
Chanos’ remarks come ahead of IBM’s third-quarter earnings report, which is set to be released after the market close on Wednesday. According to Refinitiv analyst estimates, IBM will earn $2.50 per share on $17.77 billion in revenue for the quarter.
IBM responded to Chanos’ claims about the company, including its spinoff of managed infrastructure services unit Kyndryl, in an emailed statement. “[External] relationship with Kyndryl will add 3 points of one-time revenue ABOVE the mid-term model,” IBM wrote.
“The separation of its managed infrastructure services business is part of IBM’s ongoing evolution to a platform-centric hybrid cloud and AI company,” IBM said in a statement defending the decision. “Throughout its history, it has divested of businesses that no longer meet its ongoing shift to higher value, as have many other companies.” Examples include the PC industry, low-end servers, printers, displays, retail systems, and chip manufacturing.”
IBM also questioned Chanos’ assumptions about the company’s “actual earnings,” including his use of a 21 percent corporate tax rate, which is the current rate in the United States. “Because IBM is a multinational corporation with two-thirds of its revenue generated outside the United States, its total tax rate reflects its global business profile,” the company wrote.
“IBM never stated that an EPS of $11 was expected,” the company added. The consensus analyst estimate for IBM’s full-year EPS is $10.73, according to Refinitiv.
It’s unclear how big Chanos’ IBM short is.
However, the investor indicated that it is larger than the roughly 1% position Kynikos has against electric vehicle maker Tesla. In January, Chanos, a longtime Tesla bear, said that he had converted his Tesla short position into a put position.
S&P 500 approaches a record, what this means for tech stocks
As fuel for the rebound, the market has been consuming the accumulated skepticism and defensive positioning. In the very short term (already), the question is whether a pause or some backsliding makes sense. Nothing that would detract from the overall message of a good seasonal shakeout creating a solid foundation for another run higher, but things have already come a long way, fast.
In the last 12 trading days, the S&P500 has risen by more than 6%. As a group, options traders are moving from downside hedges to upside specs, and the grabby nature of the early buying each day has left some gaps on the short-term chart. These are not always filled by returning to those levels, but they are often enough.
As is customary during earnings season, there will be give and take. The overall picture is one of strong aggregate upside to estimates, though not as dramatic as in Q2 and Q1. There are numerous potholes, almost all of which stem from the cost/margin side.
Banks are currently in a state of momentum in terms of value leadership. Selling the NFLX quarter primarily due to inflated expectations and a nice run in an expensive stock heading into the numbers, with little threat to the stock’s good trend so far.
Legacy telcos have been bouncing back after a wretched slide recently, as Wall Street piled on to the idea that wireless carriers are back in a network-investment arms race and subscriber-churn scrum, in a broadband war, and with wild guesses about what Elon Musk’s space-based network might mean in the future. Was it a case of washed-out stocks or a value trap? T, VZ, and TMUS vs. the XLC communication-services ETF, which is dominated by GOOGL, FB, and NFLX.
Is cryptocurrency in a tailspin? Following the launch of the bitcoin futures ETF, there was aggressive price action and a lot of chest-beating. The most popular options on BITO today are $60 calls, with the ETF currently trading at $43 – super bullish retail flow. I wouldn’t short it, but I’m hesitant to consider new buys into this rip.
Market breadth is fairly strong on the NYSE, with a 3:1 up:down volume ratio, the equal-weight S&P outperforming, and small-caps outperforming.
The VIX is a blip above 15, almost ready for the seasonal upward grind; we’ll see if we get it. That 15 level is basically the year-to-date low – a disturbance has always arrived not long after we got there in recent months. Still, there is a significant premium in VIX futures, indicating that complacency has not yet taken hold. True Q4 melt-ups can take the VIX well below 15, so the idea of a floor at 15 could be tested, though it’s unlikely to fall in a straight line.