Beavis, I have been bearish since the INTC 3rd quarter earnings report and the rapid decline in memory prices. Also, while supply/demand and lower component equilibrium prices are my primary reason for being bearish, the whole pacific rim thing is going to take the equipment group at least 20% lower as a whole with the possibility of 1996 valuations. I still see Wall Street's expectations and EPS numbers way too high. They will be revised down over the subsequent 2 quarters, more accurately discounting the second half of 1998.
After seeing the INTC 4q, I do expect a flat 1998 for the company in terms of earnings per share. The tax rate was 32.8% vs. 35.5%; this contributed $.04 to the bottom line. Also, an additional $.02 came from securities & currency gains in the "interest and other income" line. Bottom line for INTC for 1998= Lower global market share with the company losing at least 5% to AMD. Also, slower global PC unit growth with an average of less silicon content per unit (13% to 15% global unit growth; source IDC) Furthermore, increasing processor mix shift to account for the dramatic growth of sub- $1,000 units relative to high end resulting in a lower blended average ASP, resulting in lower gross margins (55% in q1) and progressively lower over the course of the year. Also, increasing importance of the "build to order" direct distribution model reducing semi visibility which rendures semi Book to Bills useless as a forcasting tool. Remember, to adjust Intc's cap ex announcement of $5.3 bil for the DEC aquisition which yields a flat 1998 cap expenditure from INTC. INTC management stated on the CC that 1/3rd would be spent on equipment, 1/3rd on brick and mortar, 1/3 on test and engineering.
To the thread, my time is currently being streched too thin relative to issues surrounding cycle dynamics. I currently have to spend much more time on cable modems and various new networking products slated to roll out in 1998. In addition, it is now readily apparent that the pacific rim is dragging other business models down in the tech sector where capacity is not as great of an issue as it is in semi land. I will post when I will be loading up on equips over the next 12 months. I have a feeling that when I begin to buy many on this thread who don't already think I'm nuts will surely think I'm nuts. For instance, I will probably be buying the disc drive sector over the next 3 months as prices stabilize looking for a 24 month double.
Finally, should memory prices continue to rally over the next month, I will also post that I was wrong for being bearish. I obviously don't believe I'm wrong. However, in my business one can't afford to let ego and emotion derail discipline.
Good Luck to the bulls and the bears on this thread,
Jay |
