Earlie, you also make some very valid points. I think you are perverbial "half-empty" kind of of guy, while I'm the "half full" kind of guy. But as you state, both are necessary to make markets.
Now let me try a rebuttal.
INTC makes most of its dough selling micros to a small group of PC producers. The rate of growth in PC sales is "slipping" (understatement), and a spreading deflation will likely further reduce that growth.
All evidence currently "out there" indicates the "desktop" PC market will grow 12 to 15% this year. Thats 12 to 15% greater than 98. How can this be slipping growth? Then, of course there are the higher growth segments, laptops and servers. Dell'oro indcates the laptop market will grow at 25 to 35% this year, and their estimates in the past have been low. Also, indicated is 40 to 50% growth in the PC server segment. Now, INTC currently dominates both these segments, with AMD just now starting to attempt a run at the low cost laptop segment. Add to these, the emergence next year of Merced or McKinley or whatever it ends up being and now you have INTC going after the current UNIX domain of engineering workstations.
So I must disagree with you here, and state that I am very comfortable that INTC has many growth areas going forward. Also, I should state that I don't believe INTC has to grow earnings at 30% to justify their 30 PE. In a low interest rate environment, PEs for the very top companies will continue to exceed growth rates.
but then again, their track record of the last two years has been a bit weak to say the least. (the semi "bottom" call is now over two years old, and still not showing up as forecast).
Here, I have to defer to Tom Kurlak. The guy pretty much hit the nail on the head on the way down. And you gotta realize how difficult it must have been for him to reverse on INTC, and the industry in general, as he recently did. I believe the semi bottomed some months ago, and we are now early in the uptrend. Of course, we can debate this till we are blue in the face. Only the next couple of quarters can really determine who is right.
" Exciting new products"? Hmmm. I can't buy that one. A bit more speed doesn't cut it. Also, with no new software drivers, why buy these "exciting new products"? What do they do for me? Business especially will need more than additional processing speed. For most
applications, the increases aren't discernible.
Here, believe it or not, I agree with you, philisophically that is. Your basic Pentium 133 is able to run probably 99% of business apps effectively. However, you wouldn't believe the sheer number sub-Pentium level CPUs still in operation. I work in a high tech comms company where we have just started our move to WinNT 4.0 from 3.51 and 3.1. This company will do close to $800M in revs and employs about 1300 people. I believe this is fairly typical of corporate America right now. We will be deploying mostly Dell high end desktops this year. Why high end? Because the IT shop, like most, is pretty clueless. Of course, its overkill for the kinds of apps we run. But our upgrade cycle is long, 3-5 years. And for a relatively small incremental cost, we can deploy high end CPUs, and not have to worry about upgrading for awhile longer. I believe this is how most IT shops think. Remember that a high end CPU can be initially included in an otherwise "basic" system configuration for a small incremental system cost, and this gives the IT management a feeling of comfort. And believe me, this is exactly how they think.
A very good quarter? Slightly better results than the peak of two years past may not necessarily be viewed as a good quarter. Only on a sequential comparison basis can that argument be made, but again good personal stick handling, especially compared with Paul's (g)
Exactly why the stock did nothing for two years. But the view now is that this was a break out quarter. Lets not forget that the analysts who have been upgrading INTC left and right do talk to management. Now I am the last one to follow the analyst herd, but when they validate my own observations that helps my decision making. Obviously, I try to get there before they do, which in this case I did.
Re: the cash point.
I won't give up so easily on this.<g> You are correct that cap spending will be down for 99, but read the companies statement carefully.
Capital spending for 1999 is expected to be approximately $3.0
billion, down from $4.0 billion in 1998, which included
approximately $475 million of capital assets acquired from
Digital Equipment Corporation. The lower capital spending for
1999 is primarily a result of reduced investment for new
facilities and improved utilization of manufacturing equipment.
The $4B included the purchased cap assets from DEC. Also, it appears that unlike the move from .5 to .35, the move from .25 to .18 will be cheaper, ie not requiring "new facilities". I can assure you (you probably don't need assuring), that INTC will be second to no one in process technology. That includes rollout and yield curve improvements. Most people don't realize, whats made INTC a great company is not its high performance CPUs but its unequaled manufacturing capabilities. They were first to .25, they will be first to .18 and will again be first with .13. OK, I'll fess up now. You had me here, so I had to resort to a little rah-rah cheerleading <g>.
But it appears they bought all those shares in the 3rd Q at $85, and in the 4th Q under $100. Not looking to bad right now. We'll see if they continue with the buybacks this Q. I think it reaffirms their forward view when they buy. What else should they do with this money? Dividend? Rainy day? They are obviously able to fund most ongoing R&D from free cache (sorry, couldn't resist) flow. I like the buybacks.
Re: justice.
Neither of us is knowledgeable about how this will end. But, its all probably moot now since AMD has established themselves as a credible competitor. I realize its a business practices thing, but I think this will be a non-issue at the end of this quarter.
Re: Merced and Celeron.
I assume you mistated here in that Merced had anything to do with AMDs low end success. Obviously unrelated. But the Celeron gaffe certainly hurt, and let AMD in the door. But really, what options did they have? Not compete at all for another 3 months until Celeron A was ready? It seems now that Celeron is largely forgotten, and Celeron A is a viable low end offering. Yes, INTC blundered here, but 1 quarter later, the blunder was corrected and they are off and running again. Certainly, giving low end buyers something else to consider.
If the new Celeron chip is so competitive, why is it that AMD sold everything it could produce and Intel didn't (see INTC telephone conference notes)
I think AMD couldn't produce enough to fill all it might have sold. The consensus on this is that they are still not yielding at the high speed sorts, the only place where they can hope to be profitable. And I do believe INTC ended the quarter with just the usual inventory levels, perhaps a little lowerl. Not sure where you info came from here.
Not taking anything away from the new Celeron, as it is (finally) process competitive. But AMD's products are as good and cheaper (at least for now) and they too have new products coming to market.
Have you checked INTCs latest prices for C400? AMD will have to be cutting what little yield they are getting at this frequency by about $150 per chip to maintain that 25% delta. AMD is still not close to competing on high speed yields. The K6-3 with likely gut the K6-2 market, and its on the same .25 process, with a significantly larger die to house all that L2 cache. Bigger die, means higher defect density, means lower yields. Couple this agressive frequency targets and this spells trouble to me.
One thing I can tell you is that the K6 is beloved in the
field and has gutted the "Intel Inside" marketing program. There have been very few marketing penetrations like it in any big cap field since the Chrysler rejuvenation. While Intel may be "determined to take back low end market share", there is a big difference between saying it and doing it. What the heck else can they say given the
circumstances? And the box producers love the competition anyway, as they play one against the other, so they'll bend a bit to keep AMD alive if not prosperous.
Now I get your own bit of cheerleading <g>. I can't knock AMD. I own one (a K6-2/300) and like it, except it doesn't play some of the games I like. Yes, I'm a closet Quake 2 fan. <g>.
The PC market isn't flattening out? The strong performance of CPQ, Dell, And IBM shows this? Better check the several players that have vacated the arena, the crummy IBM PC numbers from their last quarter's reports, HWP's comments on the PC market, and the many downward revisions over the last two years, even from the Dataquest's of this world. My choice of words ("flattening out") was intentionally gentle. Weak response on this one.
No need to be gentle. You know as well as I do that the strong are getting stronger. Players vacating does not equate to flattening at all. DELL, CPQ, GTW, and IBM keep growing market share. HWP had a hiccup, but will also be a player. These guys currently hold something less than 50% market share. In a few years, they will all have much more, and many other small players will be gone. But this is by no menas "flattening".
Well, Earlie, this post is getting way to long winded. You made some other points about business sales, and Kurlak, and AMDs lack of profitability. I think I stated my opinion on business sales above somewhere <g>. And I do think IBM is gaining share, especially servers and laptops, although they still haven't quite figured out how to make money at PCs. Kurlak's stance has changed. You're probably right that the sales force had something to do with it, but he held out so long, why give up now, if he really thinks the end is near? Doesn't make sense to me. And AMD did grow profits quite substantially this quarter. Just didn't quite meet the expectations. Trouble is, most feel, that in an environment of renewed INTC focus on the low end, AMD will have a very tough time. They must hope the K7 is really able to penetrate the mid to high end market, or times will continue to be tough for them. But a K7 success, does not by a long shot doom INTC. Hell, the K6 has been a great success (just not financially), and INTC continues to thrive.
Thanks for listening.
Gary |
