Jim - Re: "...the current expected (if only temporary) flattening in
EPS, which I presume is the result of pricing pressures that were
unexpected "
I think Intel has made the conscientious decision to hold its market share in the short term in the face of competition from AMD and, to a lesser extent, Cyrix.
To that end, they have agressively lowered their prices and have suffered a 3% to 10% drop in earnings - but still EARNED $1,570,000,000 this past quarter.
While this drop in earnings/share has hurt Intel's stock, it has had very damaging effects on AMD and Cyrix - BOTH of which reported LOSSES for the quarter.
Effectively, AMD and Cyrix have been put in a position where their products that compete with Intel are forced in to a marginally profitable, or UNPROFITABLE, position.
The effect on Intel has been to depress Intel's EPS but the effect on AMD and CYRIX has more serious long term ramifications. Intel has placed them in a financial position that they may not earn enough profits to invest enough money in future design, development and manufacturing resources. Long term, AMD may not be able to afford the rising R & D expenses to compete with Intel at Intel's game.
Cyrix already got bludgeoned - they had to seek a buyer to get them out of a dead-end situation.
So what we have here is Intel, willing to take short term reductions in EPS in exchange for possibly inflicting permanent long-term damage to AMD.
If and when Intel transitions their customers to the Pentium II/Deschutes Slot 1/II, they will be able to attenuate their price cutting and begin to rebuild their earnings growth momentum.
That could take two or three more quarters, in my estimation.
In the mean time, earning $1.5 billion per quarter will keep Intel's R & D engine and capacity expansion running in top gear.
Paul |
