Fred, thanks for articulating the long-term bullish case for Intel so well. I'd agree that with Intel 30% off of its recent highs, Intel bulls are really the contrarian view at this point. While there are no guarantees about Intel's future, there are many lessons from the company's past that we should at least understand before dismissing Intel's prospects as many investors are currently doing. I'm an aggressive accumulator of the stock because we are in one of those rare incredible buying opportunities where the 3-5 year fundamentals look great but the stock is trading at a slight discount to the market multiple.
Lesson #1: Intel has been one of the best performing stocks over the past five years by rising againt a continual cycle of over and underconfidence by investors. These cycles have been driven by a combination of fear and greed driven by an inability of the market to handle the tremendous ambiguity associated with the evolution of the PC industry. Just when investors think they have nailed down one paradigm and things couldn't get better, the world changes and everyone panics. People have been panicking for years about the maturation of the PC industry, but the internet and the associated PC boom caught most people by surprise. Count on more surprsises in the future that Intel will figure out a way to capitalize on.
Lesson #2: The markets for PC-related technology will continue to evolve in new, difficult to predict ways. Market leaders like Intel that act paranoid will continue to drive many of these changes and capture their fair share of the rewards.
Lesson #3: Intel has always had competitors and has always left them in the dust. Do people recall the AMD litigation? How about the PowerPC? How about Cyrix, DEC, MIPS and NexGen? Of all these competitors, only IBM (with the PowerPC) has thrived since '94, but that was only because the PowerPC was a small part of their business.
Lesson #4: Intel's profit spurts often catch investors by surprise because they often occur at the end of painful product transitions characterised by stagnating demand and profits. The move from the Pentium to the Pentium II is nearing its end, and while the Sub $1k market using Pentiums is attracting new users, the core high profit consumers are also aggressively buying the Pentium II machines (per industry holiday sales surveys). As companies upgrade to Windows NT 5.0, they are also going to invest in high end machines to prevent instant obsalescence. These trends suggest to me that Intel has the potential for some nice upside surprises next year, if history repeats itself.
Lesson #4. Never sell Intel out of fear. This is a classic Buy and Hold stock if you have a 3-5 year time horizon.
Happy Holidays
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