Anyone see this garbage??? Bottoming at 40???
Update - Intel, which has seen the market for PC chips
become increasingly commodity based, has made several
major investments. The Company announced a $780
million all-cash bid for Dialogic, a maker of hardware
and software that integrates computer and telephone
functions. This acquisition fits well with past
acquisitions of Level One Communications, a maker of
networking chips, and Shiva, a solutions provider for
network access equipment. Intel is attempting to integrate
these functions with future chip designs. The Company
also announced a $200 million investment in Wiliams
Communications, which is developing a long-distance
fiber optic communications network in the Unites
States. The Company also announced an equity
investment in Sente, Inc. a software design firm.
We understand that Intel is increasingly considering
expanding their investment relationships with
Broadcom (BRCM). This could result in the outright
acquisition of BRCM or a broadening of strategic
partnerships. Stay tuned.
Intel's stock remains overpriced at $53 and we expect it
to bottom at $40.
Original Research - As originally reported 2 months
ago, we expect a major seasonal slowdown in computer
sales. We recommended that investors avoid Compaq
and Dell and stick to diversified and service based
companies including IBM and Wang. Since that time,
Wang was purchased by Getronic NV of the Netherlands
(a return of about 40%) and IBM's stock has
skyrocketed. This week, we had our analysts take a look
at the bellwether chip maker - Intel.
Revenue Growth - Intel faces extraordinary business issues in
1999. Competition in the value PC market segment, inventory
corrections among large customers and economic slowdowns in Asia
and Europe are contributing to weak financials. With increasing
price pressures and declining ASPs, we expect that Intel will report
revenue shrinkage for the first time.
The Internet is a problem for Intel - Close to 50% of US
households now have a computer in their home. Semiconductor
companies such as Intel and AMD have tremendous capacity to make
old but still acceptably fast computer chips. Current software
requirements are increasingly being handled by these older
technologies. In prior years, Intel counted on PC buyers who
consistently upgraded old and slow processing PCs to handle new
spreadsheets and word processing demands. This is no longer the
case. PC's produced in 1997 are more than capable of handling
today's Internets requirements. New software such as Microsoft 2000
will not drive upgrades. Neither will the Internet. The Internet is
driving upgrades to modems and bandwidth related equipment.
Increased Acquisitions - Intel is increasingly turning to
acquisitions to develop new business lines and respond to industry
shifts. Recent acquisitions include Case Technology, Dayna
Communications and Shiva Communications. Intel has also made
more than 100 new equity investments to help spur increased
demands for their chips. We expect that Intel will increasingly turn
to larger acquisitions. As discussed in our research report on 3COM
and Broadcom, Intel is considering strategic investments in these
companies.
We believe that Intel's stock is overvalued relative to historical
revenue growth and earnings. We expect the stock to trade down to a
$40 level before the end of the summer. We caution against
purchasing large blocks of Intel or other companies including Dell
and IBM prior to this decline. Although we have downgraded IBM
due to valuation concerns - this remains our favorite computer related
stock. Investors who currently have large profits in
hardware related technology stocks will benefit by
reducing their holdings. Patient investors who can wait for
these major price declines will benefit significantly. Once prices
have stabilized, investors should begin dollar-cost averaging
purchasing programs. |
