Two Pentium 4s?? When One Isn't Good Enough <edited>
take a look at the revenues, even e rev for '02 is falls 16% short of '00
00:32am EDT 8-May-01 Robertson Stephens (Rothdeutsch, Eric) INTC AMD MU IFX CP
Two Pentium 4s?? When One Isn't Good Enough (Part 1 of 2)
T E C H N O L O G Y /
S E M I C O N D U C T O R
R E S E A R C H
May 8, 2001
I N T E L C O R P O R A T I O N (INTC/$31.16)
Two Pentium 4s?? When One Isn't Good Enough
Rating: Long Term Attractive
Eric Rothdeutsch 415.693.3241 eric_rothdeutsch@rsco.com
Tai Nguyen 415.248.4670 tai_nguyen@rsco.com
Change In... Yes/No Was Is
Rating No LTA
EPS F2000A No $1.64
EPS F2001E No $0.52
EPS F2002E No $0.70
52-Week Range $75.81-22.25
FD Shares Outstanding 7,007.0 MM
Market Cap $213,012.8 MM
Avg Daily Volume (000) 56,096
Book Value/Share 3/01 $5.38
3-Yr Secular Gr Rate 12.00%
Dividend/Yield $0.08/ NONE
FY December F2000 A F2001 E F2002 E
EPS
1Q $0.35 A $0.16 A $0.15 E
2Q $0.50 A $0.09 E $0.16 E
3Q $0.41 A $0.12 E $0.18 E
4Q $0.38 A $0.15 E $0.21 E
Year $1.64 $0.52 $0.70
P/E: NM 58.5x 43.4x
Rev (MM) F2000 A F2001 E F2002 E
1Q $8,021.0 A $6,677.0 A $6,659.9 E
2Q $8,300.0 A $6,209.6 E $6,793.1 E
3Q $8,731.0 A $6,373.1 E $7,132.7 E
4Q $8,702.0 A $7,010.4 E $7,846.0 E
Year $33,726.0 $26,270.1 $28,431.7
Eqty Mkt Val/Rev: NM 8.1x 7.5x
Key Points
* Our recent checks with motherboard manufacturers in Asia indicate that
Intel s original decision to only offer Rambus DRAM support for the Pentium
4 processor family continues to haunt it as the company now is being forced
to offer a second version of the Pentium 4 that supports non-Rambus DRAMs.
* While Intela has made clear its intention to support non-Rambus DRAMs, it
now appears that Intel is readying a second Pentium 4 having a different die
and requiring a larger package than the one currently shipping.
* The new single-data rate (SDR) and double-data rate (DDR) DRAM compatible
Pentium 4 which we expect to be introduced in 3Q01 is a modification of the
Pentium 4 currently in production. Even though the new die could be smaller
than the current die given the looser specifications of non-Rambus DRAMs,
the fact that it is a different die poses substantial near-term production
and inventory risks, in our opinion.
* On top of a new die, Intel will be forced to abandon the current 423-pin
package used with the Rambus-compatible Pentium 4 in favor of a more costly
478-pin package to accommodate additional I/O of the non-Rambus solution.
* In our minds, this creates additional challenges for Intel s Pentium 4
transition and could potentially force the company to incur an inventory
writedown on Rambus-compatible Pentium 4s and accompanying chipsets as the
transition to non-Rambus DRAMs accelerates in the coming quarters.
* Given the substantial challenges that Intel faces in ramping the Pentium 4
processor into the mainstream that now are being compounded with a second
version that should squeeze margins further and increase the risk of its
production build, we remain cautious on Intel s near-term prospects and are
maintaining our LTA rating.
The Pentium 4 Transition: Facing Yet Another Challenge
Although Intel s plans to offer the SDRAM-compatible 845 chipset in 3Q01 will
go a long way towards reducing the bill of materials for the Pentium 4 versus
the Pentium III, we believe it is not just the matter of introducing the
chipset (codenamed Brookdale) that will solve the lackluster ramp of the
Pentium 4. On top of Intel and its licensees ramping the 845 chipset and its
equivalents which the company says should be in production in time for the peak
selling season the company also appears to be planning the introduction of a
new Pentium 4 die along with a new package.
A new version of the die is needed to add SDR and DDR DRAM support while
essentially removing one of the large benefits of the Rambus architecture in
addition to speed that of a multiplexed bus (multiplexing an address and data
bus allows functionality to be combined onto a single pin). SDR and DDR
technologies do not support multiplexing without a prohibitive impact on
performance. Removing the mulitplexing capability requires twice as many pins
to perform the same function, resulting in the necessary die modification.
On top of a new die, we believe that a new package will be introduced as well.
The current 423-pin package will have to be abandoned in favor of a larger and
more expensive 478-pin package. No other Intel processor is offered with
different memory buses, an anathema to driving volume efficiencies. And
although it is a more expensive package, we expect the non-Rambus version to be
sold at the same price as the Rambus version, further squeezing margins.
A Production Planning Challenge During the Peak Selling Season
In our minds, this second flavor of the Pentium 4 poses additional challenges
for the Pentium 4 transition as Intel enters the peak back-to-school and
Christmas selling seasons. There soon will soon be three different platforms
supporting the Pentium 4: an Intel-only produced 6-layer Rambus-compatible
motherboard with the 850 chipset, a 4-layer motherboard with the 850 chipset
produced by various motherboard manufacturers, and a 4-layer, non-Rambus-
compatible motherboard with the 845 chipset or equivalent. The result will be
platform instability for at least a couple of quarters.
Intel needs to build it, hoping they will come
We currently are expecting Intel to sell roughly 3-4 times as many P4s in the
2H01 vs. 1H01. Because Intel is facing such a steep second half ramp that has
so many moving pieces for the non-Rambus platform to come together namely, a
new die and package for the P4, a new motherboard, and a new chipset Intel does
not have a choice but to overlap the builds for both the Rambus and non-Rambus
P4s, creating significant production planning challenges in gauging the proper
mix, in our opinion. Rather than risk a shortage of P4s during the peak
selling season, it would seem to us that Intel would continue ramping both
versions simultaneously.
...but how much remains after the party remains a question.
Depending on how quickly the market migrates towards the SDRAM version of the
P4 and then to the DDR version once Intel enables that functionality within the
845 Intel could find it difficult to move older Rambus-compatible P4 inventory
and 850 chipsets. We believe that almost immediately upon its availability,
the SDR solution will garner the lion s share of the volume, with DDR volumes
ramping as DDR DRAM pricing comes down. We expect the Rambus-compatible P4
ultimately to be relegated to the relatively low-volume workstation and gamer
segments of the market, and potentially could result in an inventory writedown
in the coming quarters, in our view.
The Company
Intel Corporation is the world s largest semiconductor supplier and provides
semiconductors, boards, systems, and software used in a variety of computers,
servers, networks, and communications products. In our opinion, Intel holds one
of the most powerful positions in the electronics industry because it controls
the architectural direction and price/performance levels of PCs.
Investment Thesis
We believe that Intel should continue to dominate the MPU market while facing
an environment of limited competition. However, Intel faces a significant ramp
of the Pentium 4 processor as well as a 0.13 micron, copper-interconnect
process, creating a substantial risk should Intel fail to execute successfully.
Over the longer term, Intel should increase its focus on becoming a broad-based
communications vendor in addition to a computer-related silicon supplier.
Investment Risks
Among the risks are competition from X86-architecture, X86 compatible and Power
PC suppliers, the manufacturing challenges and risk involved in a rapid ramp of
manufacturing facilities, the ramp of the new Pentium 4 architecture, the ramp
of the new 0.13 micron process technology, and the slowing growth rate of
personal computers. |
