Saturn & Thread: An AOL/INTC Combo?
Here's Steve Harmon's Plan:
NetStock! By Steve Harmon
chairman & CEO
e-harmon.com, Inc.
Internet Investment Provider
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2000.01.18:
AOL-Intel, A Better Fit Than Time Warner?
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Intel should consider acquiring AOL before it's too late and the next 100
years is at stake.
It's all about the bigger big picture, the future consumer ecommerce
conglomerate.
While I believe AOL's proposed merger with Time Warner makes sense, there is
one company, maybe two, that could be better AOL merger partners or which
ought to carefully consider acquiring AOL.
There is only one AOL, the world's largest Internet company in sales,
earnings, reach (about a third of all Web users).
Even with the one or two billion dollar breakup fee that AOL-Time Warner
have barricaded around the proposed merger, that amount could be
insignificant to the long-term interest of what I think may be better
partners.
The better partner: Intel.
Yes, Intel.
It's no longer a chip-making company but far beyond that and into networking
and building a consumer brand. In fact, I think Intel (INTC) may be in the
sort of position GE (GE) was in a century ago. GE leveraged its position as
the leader in electricity products which enabled the industrial and consumer
era to begin in earnest.
GE successfully navigated the technology shifts of the past 100 years off
that core competency in the hardware platform for electric stuff. Bulbs,
fridges, toasters, etc. were all extensions of electricity really. Even TV
(NBC).
Intel's core competency has been silicon chips. Processors. These provided a
hardware platform for personal computing and hence networking. Intel has
made bold moves into networking with gear, data centers, hosting, video
conferencing, investments in Internet companies, and its new mantra is "#1
on the Net."
Let's dateline this 2050 and what kind of world it could be.
Consider that the PC and TV are just appliances, very smart ones at that,
custom TV, custom dataflow. Ditto for the phone and anything else that has
electricity pumping through its veins. Because following the electric pulse
is the Internet.
Internet luminary Vint Cerf's words "IP on everything" is nothing short of
literal. Everything may likely have an IP (Internet Protocol) address:
money, documents, pet tags, car keys, people (via cell phones or handhelds
or watches).
50 years hence home networking is taken for granted (much as electricity is
today). Everything networking in fact.
Fridges with self-updating shopping lists send out orders to
Safeway-WebVan-FedEx. Phones are absorbed into every appliance so that
everything is always on the network, callable, reachable.
Home and business functionality is spot market with utilbots (software
agents) negotiating best allocation of heat, cold, light, sound, security
based on parameters that flux to needs.
And more in 2050.
The important part is that a network will glue this all together. Just as GE
glued together the electric food chain. Now Time Warner and AOL together may
certainly get there in a big way. But I think AOL and Intel could get there
in a much larger way, combining digital assets with digital assets. Growth
on growth.
Back to the present: Intel today (2000) has one of the best balance sheets
in the world. Revenue, cash flow and earnings. And Intel's debt is very
small -- under $1 billion -- compared to Time Warner's massive $17.8 billion
load.
Let's take a look at the numbers:
Company Ticker Mkt cap (bil)
AOL AOL $141.40
Time Warner TWX $105.50
Intel INTC $344.30
AOL + Intel TOTAL $485.70
Revenue annualized
Intel $32.85
After tax income $8.43
AOL $5.88
After tax income $0.74
AOL-Intel $38.73
After tax income $9.17
AOL
Revenue multiple 24.05
Earnings multiple 192.12
Intel
Revenue multiple 10.48
Earnings multiple 40.83
Combined AOL-Intel
Revenue multiple 12.54
Earnings multiple 52.98
(c) 2000 e-harmon.com, Inc.
the internet investment provider
AOL-Intel has the benefits of mature revenue, cash flow and earnings but all
high growth and synergistic in the sense that Intel can create and support
the hardware side of the consumer appliance networking era we're entering
into while AOL can support and maintain the service and features. AOL is the
face of consumer networking.
The key to the future is the reach and distribution of AOL today. Between
its AOL, AOL.com, ICQ, Netscape and CompuServe platforms AOL leads the pack
by far. If 40% of American homes are online then AOL may have about 25
million of them in its network of networks.
I estimate that 50 million users from all walks of life use AOL.
Intel's chip platform gives it a similar edge, although the PC and hardware
may not be as scalable as services like AOL since AOL can go to TV, phone,
radio, fridge, cars, planes, boats, etc. as the glue for the info-commerce
age. And AOL can pipe every media company's content and commerce through the
network. Exactly why Intel gains.
Intel cannot go there now, since I don't think the chips alone are not the
'right' platform by themselves to get there. PCs are one vehicle. And Intel
is mostly a wholesaler not retailer. Consumer networking needs a branded
front end like AOL.
Intel CEO Andy Grove coined the term 'inflection point' and I think Intel is
at one in a very big way. Intel acquiring AOL could pave the way for the
next century of commerce flow between Intel and the future of everything
connected.
Once AOL has merger with Time Warner the dance partners for the future at
the mass consumer level are few. Only Yahoo in my book has that branded
presence. But it lacks the cash flow and diversified revenue of AOL.
Intel-AOL. Perhaps a long-shot for the chip king but a royal match
nonetheless?
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