Barry and All,
Thank you for your comments.
I bought the April 85 Calls at 2 3/8 yesterday.
I would like to point out that Intel's actual statement in Tuesday's conference call was that margins would most likely trend lower in the first quarter of 98 from the 58 % recorded in Q4 of 97. The actual percentage that they projected was vague at "55 % plus or minus a few points". Please note however, that Intel has been projecting margins to trend lower over the long term, to "50 % plus or minus a few points", for the last 5 quarters. Since this initial statement was made in 1996, margins have been no lower than 57 % and as high as 62 %. The complete disregard of Intel's actual margin performance in recent quarters, in view of their 50 % long term margin projection, and analysts using 55 % as a "cast in stone" figure, while omitting the "plus or minus a few points" statement, concerned me greatly. I view such omissions and the exaggeration of potential negatives as irresponsible reporting. Of particular concern for me were statements attributed to Dan Niles' of Robinson Stephens, and Andy Neff of Bear Sterns lowering his recommendation from Buy to Hold. I have always considered both analysts as very professional and pro Intel.
None of the analysts, that I read yesterday, reported Intel's statement that despite price reductions in recent years margin percentages have remained constant in their PC business. The analysts also ignored the fact that the gross margin percentage was lower in Q4 97 because of the cost of cartridges now incorporated in Pentium IIs. As the Pentium IIs become a higher percentage of Intel's product mix shipped, margin percentages of course will be lower, although actual margin dollars will increase.
There was no reporting of the fact that flash memory prices now appear to have stabilized, or the fact that Andy Barrett stated that he was more concerned with Intel having the necessary capacity to meet anticipated demand than he was over the level of capital spending in 98.
As for analysts concerns for the sub $1,000 market and Intel's participation in this market, no one seemed to pick up on Intel's statement that this segment of the market is not a big contributor to earnings. As I have posted here in the past, Intel stated that this market segment is only strategically important to Intel because it is the point of entry for many new PC customers. Intel, I thought, handled the sub $1,000 issue well when it reassured investors that they would have new products for this market segment in the second half of 98.
The negative spin put on the $.04 cent gain in Q4 earnings, which was attributed to Intel's lower tax rate, also confuses me. This was not a one time gain, and Intel said that going forward the tax rate would continue to fall another 1/2 percentage, to 34 %, in Q1 98. When IBM lowered its tax rate from 39 to 34 % in 1997 they were given nothing but accolades for their excellent tax management. However, semiconductor analysts do not appear to share the same positive view as their mainframe analyst colleagues when reporting Intel's 1 1/2 % point tax rate reduction. This duel standard of analyzing Intel and IBM's the quality of earnings continues to confound me. IBM, it seems, can do no wrong in the view of analysts that follow mainframes, and Intel only gets criticized when doing something similar, by the analysts who follow the semiconductor companies.
Regards,
Jules |
