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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: saukriver who wrote (36233)	12/8/2000 6:03:32 AM
From: Mike Buckley	Read Replies (1) of 54805

About Intel ... Bruce, You mentioned earlier that its PEG is less than 1.0. I ran it and came up with 1.64. saukriver, One of the great characteristics of a Gorilla identified in the manual is that it can survive relatively long periods of time of mismanagement, resulting in a far healthier state of being than non-gorillas experiencing the same problematic issues. But I'm not sure there is any mismanagement going on. (My long-term view prevents me from thinking that missing guided estimates is necessarily a symptom of mismanagement.) If everything some of us are suggesting about the Internet's potential threat to Intel comes to fruition, there's likely not a lot that management can do about it. I don't believe it's really management's fault that Intel might not successfully confront that threat. It is the result of the potential value chain's reaction to prior years of being controlled by the Gorilla that, as Moore speaks of Microsoft, Intel might be the caged Gorilla that finds it extraordinarily difficult to move from one discontinuous innovation to another. In that light, I don't see your call to replace Intel's management in the best interest of the shareholders. Just the opposite, I think a case can be made that management is doing a fine job. Last year the company had $11.3 billion in operating cash flow. In the first nine months of this year it already has $9.5 billion, a 12% increase over the same period of the previous year. Let's look at the net profit margin. 1998 was a really bad year for profits. They fell dramatically to an 8.7% net margin. In 1999 they improved on increasing revenue to 10.8%. In the first nine months of this year they are 15.4% again on increasing revenue. (All calculations are based on net profits excluding one-time events.) In a nutshell, if management is disappointing stockholders it's because stockholders probably expected too much. The price they were willing to pay for the stock probably bears that out. Most companies would die for management that can maneuver such a behemoth in a transitional environment. For someone who "pays little attention to Intel," your comment wondering when shareholders are going to "boot the current management" seems extreme if not irresponsible. --Mike Buckley

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