Petz,
You are correct about Intel's guidance re long-term margins, however, what you failed to mention is that Intel has also said that they expect this to happen because of changes in their overall product mix.
Intel has many investments which they expect, long term, to yield significant actual profits, but that they do not expect the margins on these investments to be as high as current margins, consequently, they expect long-term margins to be 50%. What do you think they mean by long term? I don't take this to mean next year or even the year after that - MUCH LONGER is likely.
As an example, you might want to consider the set-top box product that we just heard about today. This is a product the market for which might be as many as 25 million units in 1999 according to today's story. Intel is expected to dominate this business but it is doubtful that margins be as high as current margins.
Intel pictures digital TV
news.com
...If Intel dominates with even as little as 50% of the 1999 market for set-top boxes, ...if their product sells for as little as $100, and ...if Intel's margins on that product are only 50%, that would yield a real gross profit of 625M in 1999. This is from a BRAND-NEW piece of business.
This is only one example of why they expect LONG-TERM margins to tend toward 50%. Intel has said they are concerned about TOTAL PROFIT DOLLARS - not margins. Keep that in mind.
Barry |
