Earlie,
Man, that was long. Of course, this means my reponse will have to be equally long <gg>.
First Merced.
<Your comment that the entire industry has "endorsed Merced" is horsefeathers.>
Here are a few horsefeather extraction from various articles and press releases:
"Sun Microsystems, Inc., and Intel Corporation today announced that they are cooperating to optimize Sun's Solaris operating environment for Intel's future Merced™ processor.
Intel Corporation and VA Research Linux Systems today announced that they have signed an agreement for VA Research to port the Linux operating system to Intel's future IA-64 architecture. VA Research will deliver the optimized port, in synch with Merced-based system availability in mid 2000.
Oracle Corporation and Intel Corporation today announced plans to work together on the optimization of Oracle's new Oracle8™, The Database for Network Computing™, on Intel Architecture. Oracle8 is optimized for Merced and will support 64-bit versions of Windows*NT and SCO* UnixWare
Intel Corporation and Discreet Logic, Inc. (NASDAQ: DSLGF) today announced they have agreed to work together to develop a new high-end special effects product. The product will be used in the creation of feature films, commercials, music videos, and broadcast programming and will run on a family of Intel Architecture 64-bit (IA-64™) processors
With DIG64, Intel, Compaq, HP, IBM, NEC, Siemens and other companies have taken a key step to ensure the efficient development of reliable, compatible IA-64 solutions meeting the high standards of IT departments
Silicon Graphics outlined its new strategic direction at a press event in New York, where SGI's new Chief Executive Officer, Rick Belluzzo, introduced a new agreement with Intel. Videotaped remarks by Intel President and Chief Operating Officer Craig Barrett were included. Under terms of the agreement, SGI will introduce an entire line of products, including workstations, servers and supercomputers, based on the Intel Architecture, and will port their UNIX* IRIX* operating system to the Intel® Merced™
The Houston PC (Compaq) maker separately disclosed it is already working with a new design group at Intel to build Merced-based servers.
the following companies are working with it on IA-64-based products: Compaq Computer Corp., Dell Computer Corp., Hewlett-Packard Co., Microsoft Corp., NetPower Inc., Oracle Corp., Phoenix Technologies Ltd., SAP AG, Unisys Corp., SAS Institute Inc., SCO, Hitachi Computer Products Inc., Sequent Computer Systems Inc. and Stratus Computer Inc.
IBM Launches Massive Unix Merced Project. IBM, along with an aggregation of Unix-savvy partners, is building another flavor of the Unix operating system with the goal of building the leading Unix product for the Intel architecture (Merced).
OEMs have lined up to announce support for the architecture, code-named Merced. Siemens Nixdorf Information Systems Inc., Stratus Computer Inc., NEC Corp. and Hitachi Ltd. have joined the list "
Of course I could provide dozens of other examples, but I think I've made my point. What's really telling about the near universal acceptance of Merced as the future architecture of choice is the endorsements by Silicon Graphics and Sun Microsystems. Clearly, they have seen the writing on the wall and don't want to be left out in the cold. I think you are in serious denial regarding Merced. However, I recall many Intel bears, saying the exact same thing about Intel when Pentium was on the drawing board.
<1. Intel's revenue growth is slowing dramatically.>
Yup, this is a fact. I also think it's a trend that will reverse for many of the reasons I have already outlined.
<2. The market is paying a rather remarkable multiple for the declining growth.>
Intel's market multiple is based on Intel's future prospects not on a short period of slowing growth. I'm sure you can find much much more remarkable multiples, like Coke or GE, or dozens of Internet stocks which won't even exist in the future. Relative to Intel's fundamental prospects and average market multiples (let alone other tech company's), I find Intel's P/E to be very tame.
<3. "Seasonality" is a rather recent thing. >
The Q-Q variations in 1999 for the first 3 quarters show the same seasonal pattern that happened in Intel's last record year (1997). Seasonality is not a straightforward concept. In years when Intel didn't see a significant peak in Q4, Q1 of the following year was stronger. In years when Q4 has shown a big spike, the beginning of the following year has been flattish or down.
4. growth, price war, etc.
Most of the factors you sited have little to do with the reasons I have stated I believe Intel will continue to grow. Growth will come from the high end of the industry, from the mobile industry, from the growth of non-US geographies (which are way way behind the US), from non-PC businesses, from the expansion of e-commerce, etc.)
<5. Perhaps Intel will be not so suffer, but that is unlikely. >
May not mistake about it, if Intel does not grow revenue over the long term, profits will suffer.
<6. Intel has been rather active in the venture capital and acquisition areas of late. In particular, windfall profits from some of their internet stocks have been rather nifty. What does this say
about Intel's actual revenues and profits in its "core" micro business? >
Intel has a history of investing in other technology company's. The premiss is to advance technology is ways which will increase the demand for more CPU's and more powerful CPU's. This is why you see Intel pushing into the networking/bandwidth relief business. Intel has stated for years and years that they want to expand outside of CPU's. They also realize that much of this expansion will come at a lower margin (percentage wise). The stated goal in their annual reports is to maximize total margin dollars. If they plan on doing this (and at lower margin percentages), they better grow revenue.
<7. Intel's recent Q2 revenues exceed quarterly revenues achieved back in 1997 and even 1996 (Q4) by rather marginal amounts (Q4). Is this a harbinger of things to come?>
Q2 vs. Q4??? Come now. If you compare 1999 Q2 to any recent year but 1997 (i.e. 1996 or 1998) you see solid growth.
<Corporate sales have cratered. That is a simple fact. Whether they remain in the tank or recover sometime after the year end remains to be seen. My discussions with MIS types has not produced encouraging comments. If you have alternative information that counters this, let's have it.>
Our business is largely dependent on the corporate PC business. We are thriving. There may be some slowing due to y2k, but I don't think this changes the long term fundamentals. My sources also suggest that corporate PC sales outside the US are doing well (although, again they would probably be better if not for y2k).
<Intel's domination of the server market has been considerable, but a bit over a year ago, it also owned the entire PC domain. The K6 had remarkable penetration, and the test specs suggest that the K7 could do likewise.>
Actually, Intel has just started to attack the server market. There is lots of room to take away share from previously non-Wintel systems. As for AMD, I think taking away share by cut-throat pricing in the retail market is a completely different story then trying to price at a smaller gap and convince IT management to switch to non-Intel CPU's at a time when most of them are rallying around Intel servers. I think AMD is going to have their hands full competing with 4-way Xeon systems and future products like Merced. Of course, I am always keeping a very close eye on AMD.
<Your comments about the increased need for CPU power/bandwidth depend upon a continuation of the remarkable growth of the net.>
You can't seriously believe that global expansion of the internet is anywhere near saturation?? Actually, your comment above is reversed from what I would say. As bandwidth increases you will see an even more remarkable growth and use of the net. Right now the potential of the net is severely hampered by bandwidth.
<E-commerce has received plenty of hype, but so far, aside from a few commodity products (like PCs) it has not become a big deal. Remember the big "virtual malls"? They've all been closed. >
We (and many people I know) do much of our shopping on the net. I think this will expand dramatically in the future. Didn't you see the figures show explosive growth is Christmas shopping on the net last year. Here are a just a few things we have purchased via the net in the last 6 months; CD's, airline tickets, pita bread (the real thing not the crap you get in the grocery store), computer components, apparel, stocks. I plan on doing most of my Christmas shopping this year over the net. E-commerce offers convenience and in most cases better prices....why wouldn't I shop that way. Once people get over the hangup of using credit cards over the net.....and once the infrastructure is in place....I think you are going to see a fundamental shift in the way people buy things. As you said, time will tell.
<Retailers who initially worried about going out of business are no longer worried.>
IMO, they should be very worried<ggg>.
<Asia may well become an important PC market at some time in the future, but it is unlikely to occur over the near term. >
"Important". I think this is a huge understatement. As for the ramping and timing of it, I would tend to agree that it will be later than sooner, but I think it will be HUGE and I think Intel will be one of the biggest benefactors.
<I'd keep my eye on this "clipper" case if I were you. The Intel legal types are not nearly as sanguine as you are. >
I'm not taking it lightly. I just think, as is nearly always the case, that at some point an agreement will be reached (in the interest of both parties).
<P3 sales ARE POOR! Even the Intel folk are talking openly about it. >
This is contrary to everything Intel has said publicly and in their CC. Sure there is some cannibalization, but much of the Celeron sales is incremental demand by newbies. I don't Celerons are being used for any infrastructure for the internet or intranets. Our company buys PIII.....haven't seen a Celeron yet.
<There is no reason to buy a P3.>
Someone is buying a bunch of PIII's. If not Inetl's income statement and ASP's would look a whole lot more like AMD's <ggg>.
O.K. I'm done. That has to be my longest post ever <ggg>.
Bottom line is that you think Intel is overvalued and I think Intel is fairly valued with lots of upside over the long term. We have both made our cases and now we will see how the dice roll.
Good luck,
FF |
