John, I am honored that an investor in our company is attempting to compare us to the Coca-Cola Company (KO) from an investment perspective. I met with the people at Coke two weeks ago when I was in Atlanta visiting investors. I wanted to see what I could learn from the way they interact with their investor population. Over the last ten years, our companies have created a very similar total return profile for investors. [INTC has ten year CAGR of 28%, KO has ten year CAGR of 29%] While each company has significantly outperformed the S&P500, the P/E multiples are very different. One of the most serious reasons for this, in my mind, is the predictability of Coke's business and their willingness to make solid forecasts based on the predictability. While they continue to grow, their market is far more MATURE in the way it behaves. If you look at the first-call estimates for KO, you'll find that the deviation around the mean rarely exceeds a penny. INTC's range is more like a nickle and that's more narrow than in the recent past - credit to our new policy of explicit guidance.
Let us also not forget the techno-intimidation factor. I can make an argument that our business is no more complicated that Coke's, the perception is otherwise. The supposed complexity of our business is one of the most frequently cited objections I hear when I'm face-to-face with institutional investors. Read the other company's pages in SI and you'll read a lot of material that comes from people who don't understand the simple truths about business, tech or non-tech. Maybe a weekend spent with Micheal Porter's "Competitive Strategy" would help.
The financial issues cited in some of the previous posts are very real and are usually the next set of objections I hear. These issues are real - even if Intel does look better than most in our biz. The requirement for significant investment has a very real positive side too, however, as not everyone can invest those kinds of dollars - fortunately our returns from those investments are significant [note that last year we did just beat COKE in return on assets and were significantly higher than the majority of big Fortune 500 types]
My real issue is to compare well with other firms in our general industry below is a note from our recent indicators in IR:
"As of 6/21/96,Intel's P/E ratio vs the S&P 500 was 17.7/19.2 =.92 up from .74 at the end of Q1 and .80 at the end of 1995. A basket of other semiconductor companies (AMD,LSI,VLSI,TI,Micron,Cypress,National Semi.) is at 0.55, and a computer companies basket (Dell,SGI,Gateway, IBM,HP,Sun,Compaq) is at 0.94 vs the S &P 500. The "HIMM" group (HP,IBM,Microsoft,Motorola)is at 1.23, skewed by MSFT's 39X trailing P/E."
So things are getting better. Still lots of work to do.
Regards,
John Hull |
