Intel Warning Has Ripple Effect
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Intel Corporation’s warning to investors that its third-quarter revenue and profit levels would come in below expectations is causing one veteran technology hedge fund manager, Jay Somaney of TSG Technology Partners, to turn bearish on what he calls the PC food chain.
Intel announced after trading last Thursday that its revenue would be between $8.3 billion and $8.6 billion, below the $8.6-$9.2 billion Wall Street analysts were expecting. Widely held Intel dropped to $20.06 on Friday’s short-session, a new low for the year. On Friday, despite a decent Department of Labor jobs report, the NASADQ composite index dropped 1.55% and the Philadelphia Stock Exchange semiconductor dropped 25% in value.
Intel has long been considered a bellwether stock for the technology heavy NASDAQ market and the technology sector of the economy.
Mr. Somaney said that the earnings surprise has forced “traders like me to look at the gamut of companies that have connections to chips and make [trades] based on a sharply different view than we had been carrying before the announcement.”
Mr. Somaney would not discuss his Plano, Texas-based fund’s assets or its performance.
An example of the trades that Mr. Somaney has pondered in the wake of Intel’s report includes adding to his position in the call options of chip-maker Advanced Micro-Devices because he said Intel’s bitter rival has been taking market share from the company.
Another sector where Mr. Somaney can find insulation from the ripple effects of Intel’s announcement is telecom manufacturing companies, such as JDS Uniphase, Lucent Technologies, and Nortel. He said their balance sheets are improving after the disastrous first few years of the decade and they are beginning to report profits. The issue here for a hedge fund trader, said Mr. Somaney, was the massive share base of these companies, who issued hundreds of millions of shares of stock during the dot-com era.
“Even if they earn hundreds of millions of dollars, the massive stock base of these company’s makes these hard long-term investments, since getting the price-earnings ratio up will take some doing.”
Mr. Somaney has been cautiously optimistic on the telecom sector for some time, he said. He recently said on TheStreet.com’s investor bulletin board, Street Insight, that he was long on Motorola call options and had unwound a bearish put-options bet on Nokia. He said his optimism was due to a published trade report that both Motorola and Nokia had increased cell phone market share.