Another good post from Fool.com. Have I proved my point? Will you eat crow, sh*t, etc. now?
>I wish I could recommend pwarton's post more than once! A wonderfully concise synopsis of recent happenings. As it happens it also saved me a lot of rummaging to find some similar info as I re-assess my INTC holdings. I try
to do that every quarter, but sometimes it's only semi-annual (my last one was in May). I post it here because there are so many smart people who can provide insight I may have missed, and maybe others will get something out of it.
First, let's link Peter's note since it has a lot of the meat: boards.fool.com
Here's the bit of greatest interest to me, an INTC long: Intel has fully reversed AMD's market share gains. They are controlling pricing and have the performance crown and will pull further away when the P4 moves to 533MHz
FSB in Q2 (so we hear) this year. At the same time they are dominating the low-cost space and emerging markets. They are pushing a 9 month advantage in 0.13 transition, and are 3 years ahead with 300mm. They have all uP
segments very well covered, with a significant new mobile product that AMD doesn't appear have an answer for (Banias in 2003). They're way ahead on flash and are taking market share. Itanium is in deployment as a
development platform (there's already an Itanium system in the Top500 supercomputer list, at #34). McKinley looks like it will beat Sledgehammer to market by 6 months at a minimum, probably closer to 9, and arrives with
non-trivial OEM, OSV, ISV, and IHV support. They're getting back into the server chipset business (i.e. controlling their own destiny again) andare at the leading edge of Infiniband development. They fully killed AMD in
networking and are the Gigabit ethernet leader. Other divisions are showing signs of life, and lots of capacity is coming on line in the next few months to be ready for the recovery, whenever that begins.
Translation: Intel is kicking butt and taking names. This is a good thing. ;-)
Speed Throttling: This clearly has become a moot point, and I won't be considering it in the future. In fact, if I understand what I've read about the newest AMD stuff they have instituted a sort of throttling for heat control also, though
they called it something different ("dynamic speed control", or some such). Kinda ironic...
Place in the market: See above from Peter. Intel continues to maintain 80+% share. Two years ago they gave AMD a golden opportunity to trounce them, and AMD did make some gains. But now, like the hare from the fable, they
have run out of steam and Intel is passing them by. Mind you, Intel didn't plan this (unlike the tortoise of the same fable). They blew it big time, and fought hard to recover from it. Two years later (and it took almost two full years),
with little or no net loss of market share, Intel is back in front for speed and performance. It seems unlikely they will get caught flat-footed for capacity in the next recovery, and so won't be leaving money on the table as they did 2
years ago.
Additionally, Intel still dominates among the OEM's. They also now support not only RDRAM, but also SDRAM and DDR. Thus the consumer can choose whatever they want based on price and performance.
Their latest product ("Northwood") is showing that the usual Intel pattern of improvement is intact. By all accounts I have seen it is much better than the previous P4 chips with more speed/performance upside potential. Barring some
peculiar bug (e.g. the floating point division thing from the original Pentium) it looks like we have a winner.
Itanium I think is still uncertain. Some say it's dead, others that is the best thing since sliced bread. I truly don't know. I see many challenges trying to break into that target market, and don't know the nitty-gritty details well enough to
comment on how likely admins will want to adopt Itanium (and take on all the transitional headaches to the new platform).
They are also invading other markets, and as we are beginning to see (e.g. Peter's post) having some success in some areas. From a revenue standpoint it still appears to be minor, but I think that was not unexpected. If it's still minor
in 5 years then there could be a big problem. Time will tell.
"Intel Inside" still works. It was a brilliant move, and has paid handsomely over the years. I could do without the little aliens (I liked the Blue Men better), but the heart of it is "Intel Inside". There are multitudes of consumers who
know very little about computers, but they know "Intel Inside". That is a very powerful plus for Intel. For better or worse, WIntel still rules.
Valuation (a.k.a. railing at the wind, jousting with windmills, etc.): Despite what others say, I think this should be at the very least examined and understood. As I linked before,
(http://www.quicken.com/investments/seceval/?cmetric=intrinsic&cursym=&csym=INTC&csym1=&csym2=&initearnec=1%2C291%2C000%2C064&egrrbtn=dd&egrdd=0&egrec=&dcrrbtn=ec&dcrec=12.00&dcrdd=0&symbol=INTC)
INTC is over-valued. (For a comparison, running "Valuepro" -http://www.valuepro.net- one gets an intrinsic value of 21.42 using only a 7% growth, and a value of 30.45 with 12% growth...anyone know why there's such a disparity
compared to quicken?) But one doesn't want simply to plug a few numbers and put a circle around the answer. One must understand various other factors. Yes, we are in a recession. Yes, we are in an industry down-cycle.
Unfortunately, neither tool will allow me to create a series of different growth rates as I would like to assume large initial growth (to simulate a recovery) followed by a "sustainable" long-term growth rate. I'm still trying to gather all
the tools to do a better job of this! I think Valuepro's numbers show the over-valuation may not be as gross as first thought, and I am more comfortable that with a "recovery" year of double or triple-digit growth that INTC can justify
its valuation better. It's not screaming "buy me", and a stop-loss may be prudent, but it certainly is not an outlandishly risky investment as some would have us believe.
Competition: While a glib, dismissive comment is tempting, I won't do it. But I will be blunt. AMD has blown it. They had a "window of opportunity", and they didn't capitalize on it very well. They enjoyed some short-term (and
deserved at that time) success. But it seems to be waning now. Whether that was due to ineptitude on their part or excellence on Intel's part doesn't really matter. The net result was the same. AMD is falling behind again, their CEO is
back to his typical (unprofessional) rantings, and will undoubtedly continue his unethical pump-and-dump path to personal wealth (at the expense of AMD shareholders). Athlon is a good product. Hammer may also be. But Intel's
competitor is in the unenviable position of having to hope for an opening to be left for them by Intel rather than making it on their own merits. Argue all you want about whose product is best...Betamax, Apple, and others have proven
that is not enough. (I don't want to say Intel's product is best when compared to Hammer since we haven't really seen it yet and it would just be speculation.)
Financials: Positive earnings during a down cycle in the middle of a recession. A huge war chest of cash (albeit smaller than before, due primarily to capex for expansion and R&D). Not that I care about brokerage house opinions,
however Banc of America at their recent conference in San Francisco had 'buys' only on INTC, MCHP and SMTC (these companies have very little product overlap that I can see, but all are semiconductor manufacturers) according to
someone I know that was there. Especially under current market conditions, this is positive.
I could probably go on, but I think this already has turned into more of a book than I had planned. My conclusion: hold Intel, put in a stop around 30 (plus or minus, depending on personal safety tolerances), continue to watch both
new CPU's and diversification ventures. I think Intel is currently priced such that any mistakes would be costly. Flawless execution (or nearly so) is needed for us stockholders to remain happy.
1poorguy (long INTC) |
