FF:
With respect to the impact of the Athlon on INTC:
Even before the appearance of the Athlon chip, Intel was forced to cannibalize its vaunted P3 to compete with AMD's K6 at the bottom of the micro market, following the initial Celeron debacle. (Celeron = P3 except for packaging and graphics instructions). They didn't expect it to be so good and they were not ready for its arrival (i.e., pants down around ankles). You might wish to talk to some of the INTC engineers to get their views on the Athlon. Bluntly, they are worried. Most own up to the fact that they will not have a product that can compete directly until year end. I do tend to dig into the available independent test results as I am sure you do. I haven't seen any of late that suggest that Intel is doing just fine, so perhaps you could sight some of them or provide URLs.
The shrink problem is very real Fred. I agree with you that we have heard about shrink limits in the past, but the guys at the design front at INTC don't kid around on this one and they have been adamant about it for close to a year. They line up some very serious arguments, not the least of which include the worry that as the micro price wars intensify and the saturation of the PC market becomes more pronounced, that there will simply not be large enough margins or sufficient demand to justify the massive expenditures for the new processes required (and not yet even refined) nor the big capital budgets that are required. While not so openly, some Intel engineers have told me that they think AMD pulled off the coup of the decade when they assembled (swiped? (G))their current design team. I note that Intel has been forced to depend on HWP design engineers during the last two years, especially when certain projects have gone off the rails.
"The box makers will get over it." Perhaps, but we both know that those same box builders LOVE the fact that they are no longer at the mercy of a monopoly, and even if AMD was not kicking butt, they would bend over backwards to keep AMD alive, just to maintain an alternative to a previously fairly arrogant and very aggressive "single source". Note that previous Intel loyalists are now negotiating with AMD. We both know that INTC suffered cancelled contracts and consequential returns at the end of 1999. This won't show immediately but it does not bode well for mid 2000.
Touche and a dozen points to you and yours with respect to the MU stock purchase. At the time, I expected the stock to tank and that INTC as well as Texas Instruments would be buried in it. The opposite is more than probable. I was dead wrong on that one. I also scored your side points for a probable dump of Rambus stock as well. (g)
It HAS been a nasty year for the PC industry. Overall 1999 revenues will likely come in about 10% BELOW 1998. It was only a scant few years ago when the norm was 35% to 40% annual revenue growth. Year 2000 will be worse, particularly as business has ceased buying. Incidentally, don't buy into the Wall Street dream that we'll see a big pickup in corporate PC purchases later in the year. MIS types control those budgets and I have never seen more unanimity than the current view which is "Are you kidding?, I just finished upgrading the whole darned shop for Y2K. I'm in coast mode until new apps appear. Besides, we don't have the budgets even if I wanted to."
Intel's 1999 operating revenues (i.e. excluding stock sales and stock buy back impact) are exactly what I suggested,...stagnated. Check it out. Even including the nonsense, they don't compare with the past.
I'm still trying to figure out the basis for your comment that Intel's margins are excellent. They are shrinking, and that is a fact.
We'll agree to disagree on AMD. Their balance sheet indeed sucks, but given their perilous slide to the very edge of the abyss, and given the fact that their "Farm bet" has paid off, and given the fact that they have pulled off the largest market share theft (from a previous monopoly at that) in the industry's history, I'm not sure that I would dismiss them at this point. I don't own their stock, nor do I think it a good idea, but their progress over the last two years has been breathtaking, and all of it has been at Intel's expense. They also have technical momentum at this point and that counts a bunch in this industry. Recall that AMD has come from NOWHERE in two years.
I agree with your point that Intel's future is tied to the "global technology revolution". For me, that "revolution", particularly as it relates to PCs, is "tired" and commoditized. You forgot to mention that the "revolution" requires new applications to remain alive. Intel's exposure to this vacuum is substantial. The "revolution" is not sustainable on word processing and access to the net.
The bandwidth comment is another area where we will agree to disagree. Sure, some will be happy to access their stock quotes a bit more quickly, but overall net useage growth is definitely slowing, and there is a nasty shakeout just about to get underway among the dot.coms. We'll see just how much bandwidth is required when the exaggerated expectations of "investors" is dampened a bit. At the box end, most PC users can't tell the difference (operationally) between a 300Mhz machine and a 500 Mhz box, anyway, except for heavy gaming situations.
I'm among those who think that the net is a wonderful technology for acquiring info cheaply but a lousy place to try to make a buck. As I've noted in the past (and just been proven accurate this Christmas), it's darned near impossible (or wildly expensive via television advertising) to educate the masses as to where one's net location is, there are far too many competitors in every niche (no barriers to entry), everything sells on price, hence margins are non-existent, (in fact, most current e-businesses basically sell a buck for $0.90), and the downstream impact of the stupidity (and staggering expense) of distributing individual products via Fedex (which is already jamming the streets with excessive truck traffic) rather than through the far more efficient hub and spoke system represented by local merchant/malls, etc., will become evident over the next year or so. Not a fad, but sure as heck not a "second coming" either. It is a seriously flawed concept as it relates to consumer oriented business.
Intel is a good manufacturer, but only so long as their plants produce at or near capacity. I just don't see that as possible over the next few quarters. Intel will suffer as do all others when downsizing becomes necessary.
Finally kudos to you for a much more accurate 1999 forecast with respect to Intel's stock price. But I suspect that my turn at bat is near at hand. Time will tell.
Best, Earlie |
