Today’s after-hours trading will be an interesting glimpse into shares of technology stocks at the NASDAQ and NYSE alike.  Intel (NASDAQ:INTC) is set to post earnings after the bell and this may be the de facto bogey or benchmark for all of tech kicking off this earnings season.  This may even be more of a tell than IBM (NYSE: IBM) after it raised guidance Monday.  It goes without saying that investors, traders, portfolio managers, analysts, and journalists will be trying to use the body language in the 5:30 PM EST conference call to gain any extra insight into how the recession or drastically slowing U.S. consumer and economy will affect the tech group for 2008.

Our three go-to stocks directly off of Intel are Microsoft (NASDAQ: MSFT) for software, and in PC-land we look at nothing more than Hewlett-Packard (NYSE: HPQ) and Dell (NASDAQ: DELL).  On the chip cap-ex side we go straight to Applied Materials (NASDAQ: AMAT), although the layoffs announced today might not show any great cap-ex in 2008 and it is becoming an indirect tie now that chip cap-ex has been soft.  The truth is that the entire cycle of tech pertaining to PC’s will key off of Intel today.  These are just our main direct tie-ins to the company, and we are leaving a tie to today’s Macworld or to AMD aside for now. 

Last night on CNBC’s MAD MONEY, Jim Cramer said he liked Intel here after the sell-off, and he’s reviewing battered tech stocks that offer solid value.  Previously, Cramer has noted how Q1 was a horrible time period for  much of the tech sector because of the spending cycles and seasonality on the calendar.

First Call has this quarter at $0.40 EPS on revenues of roughly $10.84 Billion, and this will also mark the year-end report for fiscal 2007.  Next quarter estimates are $0.34 EPS on $9.97 Billion in revenues.  If Intel goes out on the limb and offers fiscal-2008 guidance the estimates are $1.51 EPS on roughly $41.7+ Billion.  We will watch margins today since it gave a higher margin guidance of 57% +/- 1% for this quarter.

The average price target from analysts is still roughly $30.00.  The chart used $22.00-ish as support after the massive sell-off from the end of December and we’ve already noted how the chart became its enemy.  Shares were challenging $28.00 in Mid-December.  Options have very little time value as the expire this Friday.  But it appears that options pricing is braced for a move of roughly $0.80 to $0.93 depending on your read with shares (and the market) down almost 2% today.

The hardest part to determine today is NOT what the real numbers will be.  The hardest part is trying to gage a fickle Wall Street that has proven over and over that the efficient market theory is as accurate as "2+2=5."  It is obvious that the economy and the consumer are on the ropes and a cut-back in spending and a liquidity and borrowing crunch either makes for a solid recession right now or a slowdown that might as well be a recession. 

Based on the last round of downgrades we saw on Intel, the estimates, targets, and overall expectations for the processor and chip giant have come in.  We’d expect some softness ahead but Wall Street has abandoned its ability or desire to act as a discounting mechanism for the next one or two quarters out.  American Technology & Research has been somewhat cautious here on chip stocks, although we’d point to last week’s call of "We Are Buyers of INTC, Here and Now" as the most solid defense since those earlier downgrades from bulge bracket firms.  UBS also in the last 24-hours has reiterated its Buy and $32 target.

If this was a ride at a theme park, the way to describe going into today’s earnings would be nothing short of a "White Knuckler."

Jon C. Ogg
January 15, 2008

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