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Technology Stocks : Intel Corporation (INTC)
INTC 50.59+4.9%Feb 6 9:30 AM EST
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To: Rob Young who wrote (136140)5/26/2001 10:24:32 PM
From: THE WATSONYOUTH   of 186894
 
A complicated scenario all around but I believe that many
are making big fat margins on their boxes and wish to
protect those margins as long as they can.

The margins on these high end UNIX boxes are huge. Clearly, in the face of competition from IA64, these margins will have to come way down to preserve market share. The question is who is in the best position to absorb these lower margins. Surely not SUN. I don't think HP either. Possibly Compaq. But, I think IBM is in a very good position. They design and manufacture their own chips. With Intel charging $3K-4K a piece for these 64 bit processors, I see no cost advantage to an IA64 box if IBM wants to compete on a commodity basis. I've heard it said that an entire 4 chip Power4 MCM (8 processors) will cost less than $4K. My guess is that when Power4 debuts and Louser retires, Palmisano will give the go ahead to dramatically drop the prices on these high end UNIX boxes to gain market share and bring the prices in line with equivalent IA64 systems. IBM is not nearly as dependent on hardware margins as it was in the past. As more and more of these systems become commodities, a higher percentage of profits will come from service and software.

THE WATSONYOUTH
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