The following was posted by Kevin Scully, executive chairman of NRA Capital, at his blog. Visit www.nracapital.com


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Kevin Scully: 'Forecast is for 20 new fabs in 2010....they will need a lot of equipment'. NextInsight photo

Intel's lower Q3-2010 guidance affect a number of my Stock Picks which are in the semi-con equipment sector ??!! 

Last Friday, Intel lowered its Q3-2010 revenue guidance to US$10.8bn to US$11.2bn from US$11.2bn to US$12bn previously. 

The higher guidance was given about six weeks earlier.  Intel attributed the lower guidance to slower PC sales.   

After the lower guidance, Intel is still ontrack to get 17-18% revenue growth this year.  Its gross profit margin of 66-67% is also a high number for a normal weak quarter.   

So Intel's lower guidance is coming from one of bouyant growth to one of good but slightly slower growth. 


"Q3-2010 is going to be good....but slightly lower than expected".  

The key is whether the slower growth in the US economy will lead to slower growth in PC demand and furthe quarterly downgrades by Intel.  As it stands now, Intel, the global tech bell weather, is only trading at about 9 times forward earnings.

Intel's outlook is important for a number of my Stock Picks.......about half of them are technology stocks with a number such as Hisaka and ASTI being in the semi-conductor space.

What does Intel's number mean for them and should they still remain in my Stock Picks ??!!

a) Gartner is still forecasting semicon equipment growth of 113% in 2010 and 6-7% in 2011. 

b) SEMI is forecasting the opening of twenty new fabs in 2010.......they will need a lot of equipment.

I will be keeping an eye on these two entities and what they are saying but for now it looks like Intel is lowering its growth rate slightly but its still a good growth number and with the guidance from Gartner and SEMI.....I think the semicon equipment space looks robust in 2010 and will still deliver growth in 2011.

But if its a double dip.....these assumptions will have to be revisited.  I am not convinced yet that its a Double Dip yet.

What about Hisaka and ASTI ?  

Still like them and PER valuations are low at 5-7 times 2010 earnings.  Both are expected to deliver strong full year numbers and with undemanding valuations, I think the downside is limited.   Further weakness might provide a good buying opportunity.


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