Delving into Intel’s results? Try flying to China

Originally published March 28, 2010

By Ian Sherr

SAN FRANCISCO (Reuters) – To get accurate projections for Intel Corp, Wedbush Morgan analyst Patrick Wang often finds himself hopping on a plane to Asia.

Wang — who normally crafts complex mathematical models and pores over financial statements — finds, in Intel’s case, it helps to use his fluent Chinese to gather information directly from its customers: top computer manufacturers in the Orient.

“They’re just such a large semiconductor company and to get color in terms of the overall scale, you need that,” he said.

Wang and many other analysts’ predicament may underscore why the world’s top chip maker has beaten expectations in six of the last eight quarters. More than 80 percent of its sales are abroad. Analysts estimate over half its revenue comes from less transparent markets such as China, Africa and India.

Many analysts rely on “channel checks” — surveys of vendors and distributors to gauge supply and demand — but Intel’s case is further complicated by the preponderance of “white-box” manufacturers in those emerging markets: local mass producers of unbranded computers.

Unlike more developed markets such as North America and Europe, where large computer manufacturers release regular sales numbers, many Asian, African and South American countries are dominated by smaller local players.

Intel estimates white-box outfits buy 25 percent to 30 percent of all the chips it sells each quarter.

On April 13, Intel is expected to post $9.80 billion in revenue, and earnings of roughly 37 cents per share, excluding items, in the first quarter of 2010, according to Thomson Reuters I/B/E/S.

“There are countries that analysts tend to overlook because you only have a finite amount of time,” said Real World Technologies analyst David Kanter. “It’s hard to get information there because you’re not going to go to Brazil to talk to a bunch of white-box vendors.”

Yet that’s exactly what many, like Wang, have to do.


According to Thomson Reuters Starmine, an earnings surprise is likely in the first quarter. Starmine’s SmartEstimate, which places more weight on recent forecasts by top-rated analysts, predicts Intel will post earnings per share about 1 percent above the Street’s average projection.

Demand is rising for computers as more of the world comes online. But many of the Internet’s newest entrants are in locations remote enough that larger manufacturers haven’t yet established a presence, so their market is instead flooded with small generic manufacturers — the veritable black hole of sales into which analysts rarely see.

“It’s so diverse and there are so many different channel players in all different segments in so many different countries, and that’s what makes it complicated to put a sticker on,” admitted Maurits Tichelman, Intel’s director of channel sales.

Markets tend to become easier to read as the industry develops. Insiders at both Intel and Advanced Micro Devices Inc say consumers in developing markets tend to prefer white-box computers, but as their quality of life improves, so, too, does their hunger for portable devices.

Laptops tend to be the domain of major brands, so visibility into sales channels typically improve. Companies like Hewlett-Packard Co, Acer Inc, Toshiba Corp, Dell Inc and Apple Inc all report data that help analysts peer into Intel’s sales volumes.

But if multinationals don’t — or can’t — immediately move in, dominant local players rise instead. After all, Intel’s Tichelman said, Lenovo Group started as a local Intel partner in China; now it’s the world’s No. 4 computer maker.

IDC analyst Shane Rau said the sheer size of the Chinese market, and the country’s own efforts to build as many computer parts as possible within its borders, is leaving another opportunity for surprise.

IDC employs dozens of analysts on the ground, providing first-hand knowledge of the market. But if demand were to surge or drop abruptly, analysts could still miss it, he said.

“There are so many little channel players out there that it’s not entirely clear where all the processors are going.”

Hence Wang’s willingness to cross half the globe from his base in New York to Shanghai.

On a chilly November day in 2009, the 29-year-old sat in a taxi in bumper-to-bumper traffic, preparing for a meeting with product managers for several distributors and, of course, an appointment with Intel.

But even that may not be enough.

“There’s no way to get a good cross section of how those sales are doing,” he said. “You’ll never get a full picture of things.”

(Editing by Edwin Chan and Richard Chang)

(Published Sunday, March 28 on the wire at Reuters News, here.)