Merritt:
Rather than comment on Intel's demonstrated inability to forecast a follow-on quarter's numbers (see past performance) it's probably best to concentrate on what matters. To some extent, "margins" in the micro business are a bit of a smoke screen. Making micros is a capital intensive business. The plants and equipment represent huge bucks and amortization schedules can be an interesting and creative playground. It's also a very high fixed cost game, hence ANYTHING that hurts a company's volumes or prices can have an exaggerated effect. Yes, Intel (as well as most other semi producers) has brilliantly improved product performance on an order of magnitude basis, even as it has brought down chip cost through improved yields.. That said, the company still has to sell beaucoup product and has rather limited room to manoeuver if pricing falls faster than the yield curve costs do (as per memory producers' experience of the last two years. As an aside, Intel's engineers openly admit that the current move to .18 will be the last big hurrah for at least the next two years), or even worse, if sales volumes fall.. While it may be stating the obvious, reduced demand or excessive supply both do just that, and both are now in evidence.
Intel's vulnerability resides in its massive capacity, and its attendant high fixed costs. Revenue slippage will be a killer. That Dec/Intel deal speaks to the situation. As was the case in the Micron/Texas Instrument deal, one party wisely dumped (forced) capacity, (which is a killer as markets slow), onto a counter-party that had no choice but to accept an unwanted addition. Mothballing has to occur quickly and ruthlessly if damage is to be contained. Intel is already evidencing the hurts (see year-over-year comparisons) but the market doesn't want to notice,....yet.
I don't see the server market as consequential to the equation, particularly given the same ruthless pricing pressures and the migration of most of the players to that field. "Same old same old" to me.
With respect to the web, you know my views. The whole darned thing is so vastly over-estimated that it is a joke. Yes revenue growth in some internet situations is rising, but so what, particularly given the built-in profit squeezing aspect of web participation. It's just one more (rather poorly organized as yet) add-on to the many ways in which one can flog products or services.
A year from now, we'll all be laughing at the current hysteria and hyperbole, but of course that is the way of the markets. The internet is not driving PC sales now. It did two years ago, but too many people tried it and left saying "it was boring". Definitely not the second coming.
Best, Earlie
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