Markets & Finance

Still Hold Intel


Intel (INTC ): Maintains 3 STARS (hold)

Analyst: Megan Graham Hackett

On Intel's mid-Q2 conference call, the company said revenues, gross margin and expenses are seen at the low end of the mid-point of earlier guidance. Intel also said the microprocessor business is coming in as expected, and reiterated that it sees stabilization in the market and a seasonally stronger second half. Communication chips are weaker than expected, and Intel doesn't see signs of when excess inventory could be eliminated. The company believes it held its market share in Q2, and says average selling prices are down as expected. S&P is trimming its 2001 estimate $0.02 to $0.61. Shares are rich at 35 times S&P's 2002 estimate, but the upcoming quarters should show incrementally positive news.

Callaway Golf (ELY): Downgrades to 2 STARS (avoid) from 4 STARS (accumulate)

Analyst: William Donald

Callaway sees only a 5% gain in Q2 revenue to $250 million, down from prior guidance of $290-$300 million. The golf equipment maker sees Q2 EPS of $0.35-$0.38, vs. the $0.70 consensus. For all of 2001, the company expects flat revenues. S&P is cutting $0.51 from its 2001 EPS estimate, and now sees $1.00, versus company guidance of about $1.11. Operations were hurt by bad weather in the U.S. and Europe, the soft economy's impact on sales, heavy competitor discounting, and adverse USGA actions against its ERC II Driver. The uncertain near-term operating outlook and recent changes in top management could discourage investors.

3Com (COMS ): Maintains 3 STARS (hold)

Analyst: Megan Graham-Hackett

3Com preannounced a Q4 fiscal 2001 (May) shortfall. Revenue is seen between $450-$475 million, or $100 million short of S&P's estimate. The company will exit the low margin consumer DSL and cable modem market due to an inventory glut. Lower sales volume, an inventory writedown and restructuring charges will yield a negative gross margin. 3Com will still sell DSL routers and modems to the business market. S&P views the company's exit from a difficult consumer modem business as overdue, and thinks this will strengthen 3Com's profit potential. S&P now sees a Q4 loss of $0.59 vs. prior the $0.39 loss estimate. With about $4.50 per share in cash, shares are worth holding.


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