Sand Spring Advisors LLC
Ignore the Knee-Jerk Froth
April 18, 2002
by, Barclay T. Leib
Everyone knows by now that both Intel and IBM made their lowered earnings expectations for the recent quarter, with both companies trying to sound upbeat about future business prospects.
But the fact that Intel rallied on this news over the past two days (and IBM could as well -- at least for a day or two) only shows that speculative froth is alive and well in America.
Did anyone bother to notice that Intel's inventories were up, together with its account receivables? Might that not mean that Intel has contracted to sell goods on a forward basis that are still sitting in its warehouses -- perhaps, just perhaps, indicative of a bit of creative "channel-stuff accounting?"
And as for IBM, its sales were off 12% from the year-ago quarter. It's equipment sales were down 37%. Even sales into the relatively strong Asia-Pacific region fell year-over-year by almost 10%. Is any of this news really a good reason to go out and celebrate by buying IBM's stock? We think not.
In the conference call, the IBM company spokesmen tried to sound upbeat about the future, and some neophyte traders may easily believe this proferred company drivel. But the analyst audience (already burned by IBM's recent earnings pre-announcement, and now trying to move onto a higher level of moral standards) clearly was starting to turn hostile. Questions abounded during the call about past padded earnings gleened from tax rate changes and pension assets, whereas such questions would not have been asked just two months ago.
Overall, we maintain our view that IBM will at least reach $74 before we will even look for a potential bottom. In addition, the Fibonacci rhythm shown above of Intel suggests that INTC will at least reach a target of $25.70.
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