CIBC on Intel's great quarter

When was the last time Intel (INTC:NASDAQ) had a great quarter? Here is a snapshot from CIBC’s U.S.-based equity research team:

Solid Execution in Healthier PC Market; Pricing Environment Still Challenging

After the close, INTC reported 2Q EPS of $0.22 (tax-aided) on revs of $8.7B vs. Street ests of $0.19/$8.5B. We anticipate investors will focus on weaker than expected margins 46.9% and in line 3Q guidance ($9.0-$9.6B vs. Street’s $9.36B), which could pressure shares given recent strength.

Better than seasonal unit demand (desktop in particular) drove 2Q top-line upside, which was partially offset by the cont’d severe pricing environment. In our view, mgmt’s commentary further validates the health of PC endmarket, which should bode well for the analog group and NVDA.

We are encouraged by the decline in inventories (-5% QoQ) to roughly 82 days, which provides further evidence of improving execution. We believe INTC is well-positioned for 2H seasonal strength, though we expect the pricing environment to remain challenging.

We are bumping our CY07E EPS from $1.03 to $1.09, while leaving CY08 ests unchanged at $1.21. At 22x our CY08E EPS INTC trades at a premium to its historical fwd P/E of 15x-20x. We continue to favor INTC over AMD heading into 2H, although valuation/pricing environment give us pause.

MRM