Perspective always beats data. If you are solid with your Intel thesis, then stick with it. But it is still good to have the data. Here is what we are looking at into the print tonight:
- Cloud server growth remains strong into 4Q
- PC's up-ticked exiting September setting up for b-t-e for 4Q
Net: puts as ahead on topline (slight) for 3Q, ahead on topline for 4Q, and despite being a bit below on GM% for 2H17, we are above Street on EPS for both quarters. In our view this does not support a Short position.
Can you get long into the print? We are tempted but we don't like playing calls into the print. It usually ends badly. Instead we will keep the sidelines on the Short, and think this one through over the next 30 days to measure the +/- of tailwinds/headwinds going into 2018.
We moved off the Intel Short back in early June because we saw better results ahead in the summer (note HERE). We were sorely tempted to come back to the Short post MBLY acquisition, which emptied the cash coffers and turned off the buyback spigot, but we couldn't because rolling up a soft core + strong adjacencies put us only modestly below Street estimates for 2H17, not worth pressing at all (note HERE).
With Intel near the top of its valuation range on FCF (6% trailing FCF yield, 18x PF EV/FCF), and FCF set to decline, we remain tempted in this direction. Our thesis for shorting Intel in 2017 remains the same:
- 10nm delays mean the end of monetization of a golden goose, falling barriers to competition
- COGS headed higher in 2018 on depreciation growth and end of decade long re-use period, which helped non-Depreciation COGS to stay flattish within a range while revenue scaled
- Terrible acquisition strategy with MBLY irrational and ALTR rational but poor follow through post close
- Management seemingly focused on ABC - anything but the core business
- What about AMD? Oh yeah, there's that, but it hasn't been a big fixture on our map for 2017 because the actual $ losses would be small
