Thanks for link to Foolish analysis of Intel
There are so many things wrong in that analysis, that my head spins. First, Intel will be lucky to earn $3.25 a share this year, and sells for 23 times earnings as margins shrink and earnings drop. The revenues in the MPU sector will be lucky to grow 10% a year as 25% unit growth is offset by declines in ASPs. The drop in prices will be due to considerable new fab capacity coming on-ine. By the end of 99, Intel,AMD, and NSM will be able to produce close to 180M to 200M units per year. Last year they only sold about 80-85M. There is no reason why most MPUs should sell for more than $100 a pop by that time versus the $250-400 today, and they won't. There will be a glut of MPUs on the market, and more than 50% of all PCs will sell for less than $1000, and many PCs for $500.
Funny how in the write-up, they seem to use the same trend as an argument for Intel and against their competitors. Check the last wording in these paragraphs about the move to 0.25 icron process and AMD's problem with yield. Yes, AMD has yields of 50%, but they are transitioning to the 0.25 micron process. The move will essentially double the number of chips per wafer at AMD's fab, and there are new fabs starting up in Dresden and NSM has one in Portland, Maine along with Intel's 2-3 new fabs.
To be sure, all of this is cause for concern, as Intel seems destined to see EPS slide this year for the first time since 1989. On the other hand, the chipmaker has still given no clear evidence that end-user demand for PCs has actually slowed significantly. Grove blamed PC original equipment manufacturers (OEMs) for Intel's sales slowdown, saying they had built more product than end-customers purchased. Moreover, faster, more efficient Pentium IIs are hitting the desktop and the notebook markets today, with shipments of Pentium IIs surpassing Pentium shipments this week. Plus, Intel has now moved the bulk of its production lines to the 0.25 micron
technology, which Micro Design Resources has figured will cut manufacturing costs by as much as 60%.
As AMD struggles to boost chipmaking yields above 50%, it's still a reasonable bet that Intel can weather the industry dislocations. If so, this company may prove more valuable than the market has ever believed in the past, and far more valuable than the market currently thinks.
I think they have blown the analysis because they have recommended Intel at a much higher price in one of their portfolios (although its a dividend reinvestment portfolio). They can't seem to admit that they have made a mistake. They also don't seem to recognize the cyclical natures of some industries in their valuation methods. They are repeating the mistakes they made when they bought KLAC and AMAT right at the peak of the last semiconductor equipment supplier cycle in their Fool Portfolio.
I sold the last of my Intel last September in the 90s, and am not interested in the stock given the cyclical and secular trends in the microprocessor business.
Paul |
