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Technology Stocks : Intel Corporation (INTC)
INTC 36.78+2.7%Nov 26 3:59 PM EST
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To: Jules B. Garfunkel who wrote (46972)2/3/1998 2:46:00 PM
From: Reginald Middleton  Read Replies (1) of 186894
 
To: Jules B. Garfunkel
From: Reginald Middleton Tuesday, Feb 3 1998 2:44PM EST

<Go back to Forbes and ask them to explain exactly where they see Intel's accounting practices as "aggressive". I've always, along with most other analysts, considered Intel's accounting practices as "conservative". If Forbes wants to do a story on aggressive acoounting practices, I suggest they look at IBM over the last 18 months.>

When stripped of its accrual accounting measures and observed on a purely economic basis, IBM's numbers (in terms of actual economic profit) look like this over the last three years:

Book Economic Profit (from an operating standpoint)
1994 1995 1996
Return on Invested Capital 0% 6% 2%
Cost of Capital (WACC) 11% 11% 11%

Spread -11% -5% -9%

I rushed through the cost of capital, but I am sure you get the message. You have been asking me review IBM for quuite some time now. If you go to rcmfinancial.com and download the model and database (a high speed connection is required) you can slice and dice IBM using my economic methods (and help me debug the app:-).

The economic performance of IBM shows why the CEO has aggressively bought back the stock, he didn't have anything better to do with the shareholder's money on a risk adjusted basis. This is a big negative due to the fact that IBM sits in the middle of a hypergrowth industry going through a tornado-like paradigm shift.
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