As an interested Intel (NASDAQ:INTC) shareholder, I have to offer the company a round of polite applause -- wrists only, no smiling.
After all, its new line of processors is widely reported to be beating the pants off those being hawked by perennial runner-up AMD (NYSE:AMD). (Now now, AMD fans -- I do have three Athlon machines at home.) Intel's not only powering the ridiculously popular computers at Apple (NASDAQ:AAPL), it's even signed some kind of gut-swapping detente with gritty, survivalist rival Sun Microsystems (NASDAQ:SUNW).
And Intel did manage to "beat by a penny," or some such nonsense, come earnings time last week.
So everyone seems to be mildly pleased with what they're seeing, but none too enthusiastic. To get back to the title metaphor, it's a bit like the tepid reaction to the plodding, sequined, King of Rock 'n' Roll as he trotted out his act in Vegas. Everyone remembers the star of old, and they seem willing to cut the wiggling geezer a good deal of slack.
Me, I'm one of those slack-jawed nose-wrinklers. Is it just me, or does Intel look really bloated and sweaty?
I'm talking about inventory, folks. As our recent Fool by Numbers rundown shows, it grew 38% year over year -- way, way, WAY ahead of the tepid revenue growth. Revenue growth? Pardon me. I must have taken the wrong bottle from the King's medicine cabinet, because Intel actually booked a 5% decline in revenue last quarter.
When I turn to the conference call, I don't get much explanation for the stockroom flab. Chief Financial Officer Andy Bryant claimed that, in the past, Intel's been a bit too light on inventory, which has burned the company, but I have a really hard time reconciling that statement with the sheer numbers we're seeing here. At 4.3 billion bucks, the Q4 inventory position comes to 44% of the quarter's revenues, or nearly three times the net profit of $1.5 billion.
I'm willing to cut Intel some slack, suspecting that its current generation of gear is going to see a nice bit of growth in market share over the foreseeable future, but that much?
I don't believe it. And, if I recall correctly, chip inventory, unlike deep-fried peanut butter and banana sandwiches, doesn't age all that well.
Sequins, inventory, and all, Intel is a recommendation of Motley Fool Inside Value. To see what cheap-stock guru Philip Durell thinks of the aging rock star, take Inside Value for a free trial.
At the time of publication, Seth Jayson had shares of Intel but no positions in any other company mentioned. View his stock holdings and Fool profile here. Fool rules are here.
