Another M. Burstiner commentary on Intel in which she asks among other things is the name titantium "derived from a salad dressing made of oil and vinegar and dashed with oregano".
Ignore at your own peril.
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10 Things You Need to Know: Intel Hopes the Itanium Will Be a Chip Off the Old Block
By Marcy Burstiner
Senior Writer
1/4/00 10:28 AM ET
This story is part of a weeklong series that looks at the top 10 trends to help you invest in the coming year. Click on the tile at left to see other stories.
SAN FRANCISCO -- A word to Intel (INTC:Nasdaq - news) watchers: Keep your eye on the Itanium.
A lot is riding on the Itanium, the chip for servers that Intel plans to start selling late this year. Increasingly grumpy Intel investors want an Itanium rollout that's as smooth as a Raspberry Refresher from Jamba Juice. But the Itanium is the first new chip architecture for Intel in 20 years, and the rollout could go down more like a spoonful of Grape Nuts without milk. Slow sales may disappoint investors impatient for revenue growth.
Falling PC-chip prices and lagging profits have kept Intel from performing as well as many of its peers. Intel's 40% rise last year was well behind the 154% rise in Texas Instruments (TXN:NYSE - news) and the 188% rise in rival Applied Materials (AMAT:Nasdaq - news). The overall chip industry, measured by the Philadelphia Semiconductor Index, soared 99.4%, while the Nasdaq Composite rose 78.4%.
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Intel, long a cornerstone of institutional and individual portfolios, has some die-hard support among investors. But for the first time, Intel's core market is no longer driving growth. PCs have become less central to the tech industry; Intel's control of the chip industry is slipping, as evidenced by a rebellion against the Rambus (RMBS:Nasdaq - news) memory technology it backed; its efforts to tap into the Internet appear mixed and risky; and launches of its highly anticipated, high-end Pentium III and Xeon processors were tempered by price reductions forced on it by relentless rival Advanced Micro Devices (AMD:NYSE - news).
Some longtime Intel fans are losing faith. "Intel was one of my biggest holdings until the [third] quarter," says Trent May, portfolio manager for Invesco Blue Chip Growth fund. "For the first time in four years, I'm less bullish on Intel than I have been."
Intel Disappoints
The stock lagged the SOX and Nasdaq last year.
Short of a blowup at Advanced Micro Devices -- a possible, but not likely scenario, analysts say -- Intel's best hope is the Itanium. Chris Dries, technology analyst at Invesco Funds, is looking for sales late this year of 2.5 million Itanium chips, which would translate to at least 5% of Intel's revenue and significantly boost profits in the fourth quarter. "That's definitely the story on the stock next year," he says.
But, he adds, watch for the stock to drop sharply on any signs of Itanium trouble. "Investor sentiment will start to become negative if they have manufacturing problems," he says.
This sentiment strikes Joe Osha, senior analyst at Merrill Lynch, as a bit rash. Investors these days have little patience, he says, and might overreact to the inevitable setbacks inherent in the launch of complex new technology. "It is a huge project," he says. "But in this day of immediate and instant gratification, investors aren't willing to wait it out."
During the past two years, Intel has had a number of missteps. The Itanium was supposed to be out about now, but in May 1998 Intel said it would need at least six months more. This past summer it admitted to problems with its new .18 micron manufacturing process for its Coppermine chip. And its transition to revolutionary Rambus technology has been troubled to say the least.
Delays now on Itanium can be costly to Intel, says Nathan Brookwood, an analyst at technology research firm Insight 64, which is a consultant to Intel. Competitors Sun Microsystems (SUNW:Nasdaq - news) and IBM (IBM:NYSE - news) already compete in the server market and AMD is working on a K8 chip that can rival the Itanium.
"When a product is late, it typically doesn't get faster, it just gets later," Brookwood says. "Meanwhile, competitors move on with better products."
But if it can deliver, Intel is looking at a bonanza. The server chip market, which generates $6 billion in sales, has been relatively flat, but still represents a pie Intel hasn't been able to touch. On average, Intel gets about $200 for each chip it sells, but the Itanium will sell at prices from $2,000 to $6,000 each, with as many as 10 chips per server. And since it costs Intel little more to manufacture the Itanium than the Celeron that sells for $65, we're talking about a chip that's almost pure profit.
Still, Itanium requires new compilers -- software that translates computer programs into binary code. So companies that rely on massive data banks may hesitate before switching to a system based on a new technology.
"It will be a slow transition," Brookwood says. "Intel is doing everything they can to grease the skids and make the transition as quick as possible. But when you talk about [computers] that have lots of transactions associated with them, companies are very conservative with what they put in them. People will want to kick the tires and try it out for a while before they buy it."
In that case, sales of the Itanium will trickle in. And even if Itanium rolls along smoothly, it may still disappoint investors accustomed to the huge sales that came with the launch of the new Pentium. "There is a disconnect between what people expect and what Itanium will deliver," Osha says.
The name Itanium is derived from:
The material multibillionaire industrialist Tony Stark used to make his solar-charged, steel-mesh armour suit that gave him super powers.
The queen of the fairies in A Midsummer Night's Dream.
A very long movie that made a heap of money.
A family of giants overthrown by the Olympian gods.
A salad dressing made of oil and vinegar with a dash of oregano.
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