EQUITY RESEARCH
INTEL CORP.
APRIL 7, 2000
INTC: WEAKNESS VIEWED AS A BUYING OPPORTUNITY - EXPECT MORE
AGGRESSIVE RAMP OF WILLAMETTE.
Subject: Intel Corp. (INTC?$129 13/16)--OTC
SEMICO
OPINION
Current: Strong Buy
Analyst: Hans C. Mosesmann (650) 320-1631 Prior:
Traci Tsuchiguchi (650) 320-1639 Risk: Low
12-month Target Price: $165
Ind. Div.:$0.12 Yield: 0.13% Shares: 3484 mil. 52-Wk.Range: 145-50
EPS FY Year P/E 1Q 2Q 3Q 4Q
Actual 12/99 $ 2.32 55.6X $ 0.57 $ 0.51 $ 0.55 $ 0.69
Current 12/00 $ 2.92E 44.5X $ 0.70E $ 0.66E $ 0.73E $ 0.83E
Current 12/01 $ 3.30E 39.3X $ 0.78E $ 0.75E $ 0.83E $ 0.94E
* EPS from continuous operations is used for the FY99 and FY00 figures.
Summary Bullets:
- We see recent INTC weakness as a buying opportunity before the conference
call on April 18 th .
- The x86 processor market may not be a zero-sum game in the near-term, hence
both Intel and AMD benefit. Speculation on Dell and AMD is a minor matter
either way. We expect both competitors to be ?rational? which is good for
both stocks for much of 2000.
- The real question is the speed of the Willamette volume ramp in 2H00 which
arguably will be the best x86 architecture to date. A quicker than expected
ramp would be favorable to Intel in 2001.
- We would buy the stock before the conference call.
The x86 Market Is Not A Zero-Sum Game...For Now
Yesterday?s weakness in INTC stock appears to be related to AMD?s momentum
with its Athlon chip (indeed), and continued speculation that Dell will use
AMD in one or several low-end desktop models later this year (Dell has denied
this, however, a minor matter either way). Basically, investors may be
worried that the x86 processor market is a zero-sum game which would favor AMD
given the latest press releases. We disagree. Near-term, we believe both
Intel and AMD should benefit from fairly strong bookings trends and a fairly
benign ASP environment as both companies act ?rationally?. Furthermore, we
expect Intel to post upsides to Q1 consensus estimates and to have a strong
outlook for processor demand for the rest of the year given the promising
prospects of Windows 2K and server demand. Longer term (2001 and beyond), we
actually believe that Intel will have the edge again, assuming a smooth
transition to the new Willamette processor later this year. We believe that
the recent weakness in Intel stock is a compelling buying opportunity before
the conference call on April 18 th .

The Question Is Not Athlon Vs. Coppermine, It?s Athlon Vs. Willamette
First of all, we do believe AMD has a slight edge with its Athlon vs. Intel?s
latest PIII Coppermine. Why? Athlon is based on a newer microarchitecture
than the old P6 Intel architecture, and in our opinion is just a bit more
efficient all else being equal. Curiously, the Athlon?s yields at the higher
speed are quite high and perhaps ahead of Intel?s Coppermine at this time.
However, this dynamic is already in these stocks. The real question going
forward is Intel?s next generation ?P7? 32-bit architecture called Willamette
which should be the architecture to beat when introduced in the second half of
2000. While AMD is expected to introduce Thunderbird (high-end) and Spitfire
(low-end) variations of Athlon later this year (which both incorporate on-chip
L2 cache, which has been is a differentiating factor between the PIIIs and
Athlons), we expect that these derivations will be overshadowed by the highly
anticipated launch of the Willamette.
Intel Must Accelerate The Product Cycle
Under normal circumstances, Intel?s new product (Willamette) ramp would be
limited during the first couple of quarters given the initial die size of the
chip is usually about twice the size of the chip its meant to replace
(Coppermine). Assuming these die size ratios and relatively fixed wafer
capacity, you get twice as many Coppermines than Willamettes, which means that
a quicker than normal ramp would necessarily lead to market share losses. Not
going to happen, in our opinion. Therefore, Intel must add capacity more
quickly to offset this competitive threat, which is what we believe will
happen in 2001 and possibly in 2000. While the stakes are higher for Intel
given the execution problems in 1999, we do believe that investors will give
the company the benefit of the doubt once the company?s second half 2000
outlook becomes clearer during the conference call on April 18 th .
Prudential Securities Incorporated makes a primary over the counter market in
the shares of Intel Corp.
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