kevin, take a deep breath and relax: it's only money. You worry too much
that's the problem IMHO.
While you are relaxing,
food for thought regarding Barron's infallibility:
interactive.wsj.com
interactive.wsj.com
" Wrong or Early?
interactive.wsj.com
Intel soars since our story,
but risks still remain
It's time to admit we may have been too pessimistic on prospects for Intel.
When we visited the company last fall ("Zero Hour," October 4, 1999), we were impressed by what CEO Craig Barrett was doing to reinvigorate a company whose very name had become synonymous with the chips that power personal computers. But that business, long the source of Intel's impressive historic earnings growth, was changing -- and in a way that seemed to leave Intel vulnerable. For as the price of basic PCs plunged way below $1,000, it obviously became harder to sustain the growth in its most-powerful, highest-margin chips.
The solution, according to Barrett, was both to remain strong in its core PC chip business (which he insisted still retained considerable potential) while also expanding Intel into new and previously unexplored areas of potential growth, most Internet-related. In simplest terms, Intel aimed to move up the food chain to become a supplier of chips not only to PCs but also to servers and networking devices, the high-end computers that power the Internet.
That strategy, we figured, looked smart, especially given Intel's track record and the sheer potential of the 'Net. Yet, we worried that the new tack, by definition, remained untried -- and injected a whole new element of risk into a company that had been, as much as any, relatively riskless. So we figured the market a bit overly enthusiastic in pushing the stock to 75, then about 33 times expected 1999 earnings and double the targeted year 2000 growth pace. Noted Howard Anderson, president of the Yankee Group, at the time: "Investors think Intel is bulletproof but it isn't."
Since then, the company and the market proved us wrong, notably as the stock soared to a peak of 145 3/8 just before the spring tech selloff. While '99 earnings came in dead-in-line with our expectations at $2.33 a share, Street analysts are looking for 2000 earnings (with one quarter down and three to go) to grow by 44% to $3.36 a share, a pace far faster than seemed credible eight months ago. That reflects the high profit Intel is now realizing on some of its canny technology investments. But in part it's also due to the start of whole new revenue streams from the 'Net and the dawn of the digital handheld wireless world, a world where Intel has made itself a major player.
All that said, Intel -- along with just about every other U.S. chipmaker -- saw its stock take a brief hit last week on the combination of investor worries related to earnings warnings from Computer Associates and a less-than-upbeat report from Salomon Smith Barney analyst Jonathan Joseph, who cut his rating of the semiconductor sector to neutral from outperform. Intel stock dipped to 130 9/16 before bouncing back late in the week to 139 and change.
While it's now clear that the risks we worried about are more benign than we figured, they haven't gone away. At current levels, Intel trades at 41 times expected 2000 earnings. While that may not in itself be too rich by tech-stock standards, it is still nearly six times the 7% earnings growth forecast for 2001. From these levels, anyway, it may turn out that we were not wrong so much as early.
-Jay Palmer
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