>Intel ...confirmed the article in The Wall Street Journal< NOT!
I do agree with your comments in the 2nd and 3rd paragraph of your post, but when you say "this does not portend anything for next week", I'd have to say that its only next week that it unaffected. This is big, BIG news and people are going to be waiting on pins and needles for the magnitude of the August price reductions.
Quoting from Intel's press release, "Intel plans to lower prices on certain Pertium processors more than had been previously planned in August, then hold prices through the end of 1996...pricing policy is subject to change...long term intent remains unchanged: to pass on...cost reductions". This is much different than the WSJ story which only mentioned the removal of the Nov price drop.
If the new Aug price drop is going to encapsulate the old price drops for both Aug & Nov, then the impact is to depress 3Q profitability with no impact on 4Q profits. Moreover, since Intel reserves the right to lower prices in Nov later anyway (and this is INTC's 2nd major pricing policy revision this year, so its not out of the question), analysts will take INTC's projected 4Q profits with a big grain of salt.
If on the other hand the magnitude of the new price drop in Aug is less than the combined effect of the two older price drops, then the lost 3Q profitability could be made up (partially or in whole) by higher margins and profits in 4Q (once again only if INTC can hold prices for the rest of the year).
The ultimate impact will not be known until Aug. But here are some interesting points to think about:
1) CYRX and AMD are soiling their pants right now while waiting for Aug. If Intel drops a full-blown double price cut in Aug, kiss these stocks good-bye, not good buy. The nightmare scenario for CYRX and AMD is that Intel's statement is code-speak for "I think I'm in the last stages of the marathon with you guys and I'm going sprint the last two miles at a 4 min pace. I don't think you can follow me, and if you do I'll pick up the pace in Nov." If on the other hand the Aug price cuts are only a little more steep than usual, CYRX and AMD are helped by the milder competition. I think AMD would be helped more than CYRX, since their product line up is weaker currently and will catch up more by 4Q when the fatter margins would occur.
2) If one believes INTC, and there are no price cuts in Nov, the Aug price cuts will also signal pricing on the P5-200/MMX intro in 4Q. Because pricing would be known for all Intel CPU products (more or less) for the rest of the year, analysts would be able to get extremely tight earnings estimates and there will be little information content about margins that would not already be reflected in INTC's stock price by Aug. This implies that all price movements in INTC stock due to margin (but not volume) movements for the rest of the year would occur in Aug. This illustrates the importance of the Aug pricing.
3) It is entirely possible that even INTC itself has not determined the scale of the Aug price cuts, and will wait until later to see how volume is progressing. This is the proverbial good news is bad news for CYRX/AMD. It means if they cut into Pentium sales, INTC will squash prices. CYRX/AMD only get price relief if INTC sales are booming. And we all know that the only way all three can see booming sales is if the market expands big time (in this case an investment in CYRX in particular would almost be like a leveraged bet on CPU unit growth, ie. kinda like a leveraged bet on ...INTC! Can you say - irony?). |
