Fred:
Let's look at some hard numbers re Intel.
Revenues Q1, 1996 - $4.644 billion
Q2, 1996 - $4.621 billion
Q3, 1996 - $5.142 billion
Q4, 1996 - $6.440 billion
Total - $20.847 billion
Q1, 1997 - $6.448 billion
Q2, 1997 - $5.960 billion
Q3, 1997 - $6.155 billion
Q4, 1997 - $6.507 billion
Total - $25.070 billion
Revenue growth year-over-year - 29.5%
Q1, 1998 - $6.001 billion
Q2, 1998 - $5.927 billion
Q3, 1998 - $6.731 billion
Q4, 1998 - $7.614 billion
Total - $26.273 billion
Revenue growth year-over-year - 9%
Q1, 1999 - $7.103 billion
Q2, 1999 - $6.746 billion
Annualized total (including a "flatish" Q3 and a mild scale-up for Q4)
- $27.525 billion
Revenue growth year-over-year - 4.7%
Over the above-noted period of time, the stock price appreciated as follows: Jan, 1996 ($15) to Jan, 1997 ($30) - 100%
Jan, 1997 ($30) to Jan, 1998 ($40) - 33%
Jan, 1998 ($40) to Jan, 1999 ($60) - 50%
Jan, 1998 ($60) to present ($67) annualized (22%)
Some interesting notes:
1. Intel's revenue growth is slowing dramatically.
2. The market is paying a rather remarkable multiple for the declining growth.
3. The DEGREE to which the market is willing to pay more for less growth with respect to Intel is not declining (yet). This relates to Intel's heavy institutional ownership (see my earlier comments on why this is a worry)
3. "Seasonality" is a rather recent thing.
4. Last year, global PC unit sales (rounded off) were 100.0 million. This year, that number will be exceeded only marginally if at all (if it is, it will not be by much). Last year, AMD while growing fast, still accounted for well under 10% of that market. At present, AMD can produce close to a quarter of that total annual requirement. (although selling all of them is another matter). Intel is also increasing it's output via improved yield. The Taiwanese just bought Cyrix and will spool up their production of micros in the near term. The inventories of both AMD and Intel are increasing. Does this suggest that there will be any price war relief in the near term? What is this likely to do to revenue growth of ANY of the combatants?
5. When revenues decline, in the absence of accounting chicanery, profits usually suffer much greater percentage contractions. Perhaps Intel will be not so suffer, but that is unlikely.
6. Intel has been rather active in the venture capital and acquisition areas of late. In particular, windfall profits from some of their internet stocks have been rather nifty. What does this say about Intel's actual revenues and profits in its "core" micro business?
7. Intel's recent Q2 revenues exceed quarterly revenues achieved back in 1997 and even 1996 (Q4) by rather marginal amounts (Q4). Is this a harbinger of things to come?
8. Intel has massive capacity and is adding more (via yield). We shall see how well the company handles the difficulties associated with downsizing capacity as this glut really begins to bite.
With respect to a few of your other comments:
- << anyone can gain volume share if they are willing to use Kamikaze pricing and sell for a loss >>.
This is inaccurate. AMD first had to design and then build a product that was MORE than competitive. Recall that back then, AMD had to prove to the big players that not only was their product competitive, but also that the PC producers would not lose market share as a result of utilizing a micro that might prove less reliable. None of the major box builders were interested in garnering Intel's wrath and/or in risking their "allocations" of micros (i.e. having Intel cut back on their supply of micros). AMD had one heck of an uphill battle. Without a major price concession, why would any of the big players take the MULTIPLE risks involved? Additionally, if you go back and check analysts' comments at the time, you will find that the vast majority of them considered it "unthinkable" that AMD would have any penetration or cause Intel any difficulties whatsoever.
I did not call Intel's management a "bunch of scamsters". That is not my style. I have commented on their selling of massive quantities of put options (no longer the case since the SEC put out the word).
Your comments about inventories are red herrings. The fact of the matter is that both companies are experiencing rising inventories, which means that prices will continue to come down fast. This is not conducive to increased profits.
Corporate sales have cratered. That is a simple fact. Whether they remain in the tank or recover sometime after the year end remains to be seen. My discussions with MIS types has not produced encouraging comments. If you have alternative information that counters this, let's have it.
Intel's domination of the server market has been considerable, but a bit over a year ago, it also owned the entire PC domain. The K6 had remarkable penetration, and the test specs suggest that the K7 could do likewise.
Your comments about the increased need for CPU power/bandwidth depend upon a continuation of the remarkable growth of the net. Of late, we have seen the very first indications that net useage may be leveling off (AOL and other ISPs reported reduced net access for the first time last month). Time will tell.
E-commerce has received plenty of hype, but so far, aside from a few commodity products (like PCs) it has not become a big deal. Remember the big "virtual malls"? They've all been closed. Retailers who initially worried about going out of business are no longer worried.
Again, time will tell. I'm beginning to think that net useage may end up having a direct correlation with bull market conditions. Certainly stock-related activities top the list of net utilization.
Asia may well become an important PC market at some time in the future, but it is unlikely to occur over the near term. Asian economies must get back on an even keel first. In spite of CNBC hype, the actual numbers emanating from Asia suggest that a real recovery is not at hand (Japanese machine tool orders just took another dump as an example, China recently cut its interest rates to stimulate a sagging economy etc.)).
I'd keep my eye on this "clipper" case if I were you. The Intel legal types are not nearly as sanguine as you are.
P3 sales ARE POOR! Even the Intel folk are talking openly about it. The problem is that the whole world now knows that there is precious little difference between the P3 and the Celeron (Intel's emergency response to the K6....cannibalize the P3). There is no reason to buy a P3.
Your comment that the entire industry has "endorsed Merced" is horsefeathers. Most just want to see and evaluate it. Aside from that, one has to make a massive leap of faith to believe that it will sell well (and that is what counts) given the fact that most of the sales action is at the bottom of the PC spectrum. Cheap PCs do more than what most of us require.
As far as the rest of Intel's road map is concerned, I'm from Missouri. Intel engineers that I talk to suggest that after .18 um, there will be a lengthy development period before anything of consequence emerges. Note that this is not my comment, but theirs.
Best, Earlie |
