New Trade INTC: Tablet Cannibalization is Coming, Some Chip Makers May Be Left Out in the Cold

by Dan July 3, 2012 12:54 pm • Commentary

When INTC reported their Q1 results in mid April the company guided down for Q2, specifically, gross margins from 64% to about 62%.  Company kept their guidance in place for the balance of the year, and the real question heading into the company’s July 17th, Q2 conf call will be whether or not they were conservative enough for the balance of 2012.  

Wall Street analysts are very mixed on the stock with 27 Buys, 25 Holds and 4 Sells even as the stock shows relative out-performance (up ~10.5% on the year) to both the SPX and the SOX, up 9% and 6.5% respectively.  I assume the 3.3% dividend yield has something to do with it, as it is viewed a bit more defensive than some other higher beta names in the space.

I am going to do a deeper dive on the name as we get closer to earnings, But with the stock up, and vols in, I wanted to look for a slightly cheeky way to make a near term bearish bet in front of earnings.  With all of these new tablets coming to market from the likes of MSFT and GOOG, I want to get a better sense for what margins on cpu’s going into tablets vs PCs ,really looks like and who is best positioned to absorb slowing PCs sales as tablets make inraods.  I suspect that INTC might have been caught flat footed as they have very few design wins as of yet in the tablet space…..

This is not THE trade in INTC for the summer, but this one gives me a little exposure with defined risk for the time being.


TRADE: INTC ($26.82) Bought the July 26/25 Put Spread for .18
  • Bought 1 July 26 Put for .32
  • Sold 1 July 25 Put at .14


Break-Even on July Expiration:

Profits btwn 25.82 and 25, make up to .82, max gain 25 or below of .82 or 4x your money.

Losses of up to .18 btwn 25.82 and 26, max loss of .18 above $26.