The Sky Isn't Falling
10-13-99 4:55 PM by Kelli A. Stebel | Many fund managers remain
bullish on Intel INTC even though the chipmaker posted disappointing
third-quarter earnings. On Tuesday, Intel reported earnings of 55
cents per share, just under the consensus estimate of 57 cents.
"I'd buy Intel today," says Rose Papp, who comanages Papp Stock
LRPSX and Papp America-Abroad PAAFX with Roy Papp. The
funds have huge bets of 6% and 9% of assets in Intel, respectively.
Intel has been a longtime holding for the Papps, and they aren't about
to abandon ship. "I'm not upset by yesterday," added Roy Papp,
"Intel is up more than 20% for the year. That's not exactly a disaster."
For the Papps, Intel's disappointment was a short-term event. Rose
Papp says the primary reason for the disappointment was a delay in
releasing some new chips to the market, which hurt revenues. Papp
thinks, though, that those chips will be released in the fourth quarter
and will help improve margins.
The Papps are looking beyond 1999's fourth quarter. According to
them, Intel has a successful business model going well into the 21st
century. Rose Papp cites Intel's recent foray into network
communications as a positive move. Intel recently bought
network-chipmaker Level One Communications, and also acquired
the rights to StrongARM, a chip design, from Digital Equipment. She
acknowledges that there will be heated competition in that area, but
"in 1999, Intel spent 50% of R&D on servers and workstations. That
area has huge growth potential."
Richard Dahlberg, manager of Pioneer II PIOTX, shares the Papps'
enthusiasm about Intel, but not for the exact same reasons. Dalhberg
thinks Intel's move into communications is more peripheral, and strong
revenues will continue to come from their chip business. "The upturn
we've seen lately in semiconductors will last a couple of years and
Intel's fast chips will give them an edge," says Dahlberg.
Dahlberg also expects revenues from abroad to help Intel. He says he
wants to invest more in companies with an international scope because
"the U.S. economy is looking a bit suspect after being red-hot for
eight years." Intel's international exposure, then, will help weather any
storms on the domestic front.
Not all fund managers, however, are so confident about Intel's future.
Blaine Rollins, who runs Janus Balanced JABAX and Janus
Equity-Income JAEIX, has stayed away from Intel. "I'd rather own
companies benefiting from cheap PCs than Intel," says Rollins. In the
past, Intel has had incredible revenues, powered by high-end chip
sales. As computer prices have dropped substantially in the past year,
though, that landscape has changed. Today, more than 50% of
computers sold cost less than $1,000, and many are packed with
chips manufactured by Intel's competitors.
Interestingly, Janus' fund lineup, which is known for stocking up on
tech names, doesn't own much Intel. Only Janus Growth and Income
JAGIX has a modest 0.6% position in Intel, according to the June 30,
1999 portfolio.
In addition, managers on Morningstar's technology roundtable were
wary of the stock even before the earnings announcement. Warren
Lammert of Janus Mercury Fund JAMRX said the PC's importance is
waning and Intel is short on intellectual property.
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Kelli A. Stebel is an Associate Editorial Analyst with Morningstar.
She can be reached at kelli.stebel@morningstar.com
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