INTC: Inventory Correction Ahead

Forbes.com, Fall, 2011. This article was placed on behalf of the U.S. based equity research effort of institutional broker and investment bank Canaccord Genuity. It was part of a series of articles developed under an agreement with forbes.com to work with a variety of contributors and assist them in delivering actionable investment ideas each week. The site, forbes.com is one of the top 500 sites in the world with nearly 10 million subscribers and approximately 100 million page views a month.

“We see risk of inventory correction for Intel (INTC) in the first quarter,” said Canaccord Genuity analyst Bobby Burleson. “Recent checks indicate Intel’s customers are experiencing CPU inventory growth in Q4 as a result of hard disk drive shortages.”

Mr. Burleson said, Tier-2 customer inventories appear to be growing the most and now stand around six to seven weeks, versus their normal four weeks. Tier-1 customers are also seeing inventories grow to about 1.5 weeks above normal.

He said, “We believe [hard disk drive] shortages could constrain PC production by >20% in Q4 and are likely to worsen in Q1, constraining production by as much as 40%. This disruption comes at a time of increasing uncertainty for PC demand.”

Mr. Burleson cautiously reiterated his HOLD rating and $24 price target on INTC.