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To: George W Bush who wrote (1603)	10/21/1997 2:41:00 PM
From: AK2004	Respond to of 6843

Lou, all - lb projections ok, below is the news Regards -Albert 12:24pm EDT 21-Oct-97 Lehman Brothers (M. A. Gumport, CFA/C.Gangi 1(212)5) INTC Intel Corp: Summary of Upcoming Basic Report Update - X86 Market Share Ticker : INTC Rank(Prev): 2-Outperform Rank(Curr): 2-Outperform Price : $85 5/8 52wk Range: $102-52 Price Target: $ 90 Today's Date : 10/21/97 @11:15am Fiscal Year : DEC ------------------------------------------------------------------------------ EPS -1996-- -----1997-------- -----1998------- -----1999------ QTR. Actual Prev. Curr. Prev. Curr. Prev. Curr. 1st: 0.51A@* 1.10A* 1.10A* 0.90E 0.90E 1.05E 1.05E 2nd: 0.58A* 0.92A 0.92A 0.95E 0.95E 1.10E 1.10E 3rd: 0.74A* 0.88A 0.88A 0.95E 0.95E 1.10E 1.10E 4th: 1.06A* 0.86Ex 0.86Ex 1.00E 1.00E 1.20E 1.20E ------------------------------------------------------------------------------ Year: $ 2.90A@* $ 3.76Ex* $ 3.76Ex* $ 3.80E $ 3.80E $4.45E $ 4.45E Street Est.: $ 3.99E* $ 3.82E $ 4.69E $ 4.31E $5.30E $ 4.60E @-Includes 1Q96 $-0.01 inventory write-down; -Split adjusted ------------------------------------------------------------------------------ Net Cash per Share : $5.62 Revenue (1997) : $25.4 Bil. Return On Equity* : 34.6 % Proj. 5yr EPS Grth : 15.0 % Shares Outstanding(z): 1797.0 Mil. Dividend Yield : 0.2% Mkt Capitalization : $153.2 Bil. P/E 1997; 1998 : 22.8x; 22.5X Book;Price/Book : $11.42/sh;7.50x Convertible : None Disclosure(s) : C Puts in Equity unexercised; z-Share equivalents;x-4Q97 excludes $-0.06 in process R&D write-off for anticipated acquisition. ------------------------------------------------------------------------------ FIRST CALL SUMMARY OF UPCOMING BASIC REPORT UPDATE - X86 MARKET SHARE UPDATE ------------------------------------------------------------------------------ * Versus 2Q97, 3Q97 X86 Microprocessor (MPU) units +19.4%, Revenues +6.4%. Our tally shows 3Q97 X86 MPU units at 24.2 million, sales at $5.2 billion. Good News: Third quarter's rebound was unusually strong in the normally slow summer quarter and fully reverses the 2Q97 15% unit and 9% dollar setbacks. Bad News: 3Q97 X86 ASPs fell 10% to about $216. Sub $1K PCs have emerged as the hottest sector of the market. Long term, we believe this presages a major X86 market expansion into 2nd, 3rd, 4th and 5th PCs for the home and a dramatic rise in international penetration but, short term, this trend favors sectors of the business clone makers are best able to serve. X86 Market -% change Q2/Q3----- -% change Q3/Q4e---- Units Dollars Units Dollars Intel + 16.5% + 5.1% + 2.1% + 0.1% AMD + 6.0% + 5.6% +23.9% +47.2% Cyrix +159.4% +128.1% - 3.8% + 9.2% Total MPU +19.4% + 6.4% + 3.8% + 2.0% * INTC'S 3Q97 Share Down Marginally. INTC's units rose 16.5% to 20.3 million with dollar sales +5.1% to $4.9 billion. INTC 3Q97 retained 83.9% unit market share (2Q97: 86.0%); 93.7% dollar volume market share (2Q97: 94.9%). Good News: None. Bad News: Market share losses were limited chiefly by Advanced Micro Devices's(AMD - 28 7/8, 1) yield problems. AMD and Cyrix (CYRX - 30 3/8, 1) X86s have been well received. Absent yield issues, AMD likely would have had little problem selling 0.5 million more K6s and taking an extra 2 points of unit and dollar volume market share. * INTC 4Q97 EPS Projections Include Only Nominal 4Q Unit Growth Versus 3Q. Good News: Projections include only 2% 4Q97 unit volume growth for INTC (and just 4% for the market). In recent years, only 1991, 1993, 1995 had fourth quarter X86 units flat/down versus third quarter levels (units in 1992, 1994, and 1996 moved up on average about 18%!). We see little fourth quarter downside and 50/50 odds of good upside. Bad News: THE "ODD YEAR 4Q RULE". Every odd year has been a tough one for fourth quarter units. 1997 is all the more "odd" since, if X86 units are strong, it may well again be heavily skewed to low and high priced machines. The mainstream midsector will likely end up repositioned at a lower ASP, and the overall skew of the market will tend to favor clone makers. * Our Models Include X86 Units +18% in 1997, +22% in 1998 with Dollars +29% in 1997, +12% in 1998. A major transition to 6X86 class Pentium Pro and Pentium 2s pushed up 1H97 ASPs. ASPs are now headed down, and we expect 8% lower ASPs in 1998 despite INTC's push to drive new high performance MPUs into the market faster than ever before. X86 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997e 1998e Sales 224% 101% 10% 56% 70% 53% 64% 40% 35% 29% 29% 12% Units 199% 43% 27% 29% 32% 27% 26% 19% 30% 21% 18% 22% SUMMARY: ON BALANCE, WE BELIEVE CHIP STOCKS, AFTER REACTING TO THE RECENT FUNDAMENTAL DECELERATION, WILL MOVE UP OVER THE NEXT SIX MONTHS DUE TO STRONG RESUMED ORDER GROWTH. STILL, WE REMAIN RELATIVELY CAUTIOUS ON THE INVESTMENT OUTLOOK NEAR TERM FOR THE MPU MARKET. With regard to INTC, we believe that, given current market P/Es, INTC long term remains very undervalued. That said, the situation today is quite different from a year ago (when we argued INTC easily merited and would be accorded a very dramatically higher PE). We still believe, longer term, INTC deserves a much higher PE, but... P/Es do not usually go up when market share and margins are eroding. The next MPU market event, a price cut due on November 11, seems unlikely to be favorably received. --Intel---- --AMD------ -Cyrix----- -Other----- Market Share Units $ Units $ Units $ Units $ ----- --- ----- --- ----- --- ----- --- 1992 66.4% 86.3% 30.2% 12.7% 1.7% 0.8% 1.7% 0.2% 1993 71.9% 91.9% 21.9% 6.6% 2.2% 1.3% 4.0% 0.2% 1994 74.2% 87.2% 19.1% 9.7% 4.3% 2.6% 2.4% 0.6% 1995 77.7% 92.0% 15.4% 6.0% 4.9% 1.7% 2.1% 0.3% 1996 82.9% 95.5% 11.5% 2.0% 2.0% 1.1% 3.7% 1.4% 1Q97 83.3% 95.3% 10.9% 2.3% 3.0% 1.4% 2.7% 1.0% 2Q97 86.0% 94.9% 8.9% 3.4% 2.5% 0.8% 2.6% 0.9% 3Q97 83.9% 93.7% 7.9% 3.4% 5.4% 1.7% 2.8% 1.2% 4Q97E 82.5% 92.0% 9.4% 4.9% 5.0% 1.9% 3.1% 1.3% 1Q98E 83.8% 92.3% 10.4% 5.3% 4.4% 1.6% 3.2% 1.3% 2Q98E 81.3% 91.3% 12.2% 6.1% 4.6% 1.6% 4.1% 1.6% 3Q98E 78.7% 90.2% 13.9% 6.8% 5.6% 1.9% 4.4% 1.7% 4Q98E 77.2% 90.1% 14.2% 6.7% 7.2% 2.3% 5.3% 1.9% ------------------------------------------------------------------------------