Enough of the nonsense.
You stated:
"They also said that the demand was above their expectations. Why aren't you taking that into account when you accuse them? Q4 is normally far and away the highest volume quarter and Intel completely depleted their inventories, meaning they used more than the full output of Q4 to meet demand."
From the Intel financials:
Qtr Raw WIP Finished Total
3Q99 204 840 582 1,626
4Q99 183 755 540 1,478
1Q00 228 802 532 1,562
This within the context of two key data points:
1) Cost of Goods Sold has been running at about $3 billion, so the fluctuations in inventory are minuscule to the point of meaningless. Now, maybe a company with $30+ billion in sales is a little crazy to run with only $500 million in FG inventory, but that's another story (and given the obsolescence in MPUs, why not offload the valuation risk to the customers? If you're effectively the only game in town, it makes sense to operate that way, except "you're" now means "you were" instead of "you are").
2) Given that the management had been talking about a strong second half for all of last year, why were operations so stessed to meet a typical ramp in demand?
After all, 4Q99 was up only 8% Y/Y (read that again - 8%, not 18% or 28% or 38%, as an investor would expect from a company selling at the time with a multiple in excess of 40x).
Contrary to your statement, I don't believe the discussion will go on forever - something is likely to give: either execution at Intel will improve or the appreciation potential in the shares will be enhanced by a price correction. As is typical with this industry, leads and lags in perceptions mean the two events are likely to happen contemporaneously.
In the meantime, the central question (IMO) remains: why did a company with $20B+ of cash and securities that has been talking for quite some time about a market that it expected to grow to 100MM servers connected to 1B PCs fail to invest in property, plant and equipment in 1998-99 (net PP&E only grew 10% from 4Q97-4Q99)? How did the planning process go so astray? How did the "equipment reuse" effort/panacea really become such a central feature of the company's investment process? One conclusion is inescapable - gross margins are so high right now due to artificially low depreciation reflecting under-investment in plant and equipment.
My guess is that when this episode is all over, case studies will be written. I'd love to know what went on. Heck, I'd like to know what's being done now to reverse the momentum slide. And the investment stuff is all about the momentum, so pointing out Intel's various superlatives (of which there are many) is really irrelevant.
Tad LaFountain |
