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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Jules B. Garfunkel who wrote (38295)	10/29/1997 6:50:00 PM
From: Doug M.	Read Replies (5) \| Respond to of 186894

Jules, Paul or thread, As a concerned Intel investor I periodically use this thread as a source of information. I have never posted before because I have not felt the need to until now. Like many others, I am concerned with Intel's growth going forward. Obviously, Intel has not been able to post sequential quarterly growth for a while, and we know how Wall St. loves sequential growth. Forget about any five to ten year plans a company like Intel may have in place. I have a substancial position in INTC, INTCW, and 99 leaps (75 strike)which I bought when Intel was about 132 pre split. For the next couple of months I believe my strategy will be to write covered calls until we can get a substancial driver to move this stock up. My main concern will be what will this driver be. Obviously we are entering the most bullish time of the year for tech (buy at AEA, sell at H+Q) but this is no guarantee. Look how Intel soared over the summer when tech is supposed to be slow. Anyway, the main mindset with the analysts now is that Intel's ASP's are deteiroating and it appears they think they won't get too much better any time soon. This is what I would like to try and figure out. When is Intel going to be able to surprise the street and increase earnings so I can stop selling coverd calls. Of course, during the Q3 call most of the shortfall (3 cents) was attributed to a decline in flash. And the stock wouldn't have gotten hammered if they portrayed a brighter picture for Q4. Remember last year when they wouldn't comment about Q4 ant the end of Q3 because of propisition 211 or whatever it was. It wasn't until early November until that propisition was defeated in CA. that Intel commented about their fourth quarter. I believe they said revenue would be substancially higher and gross margins better than the third quarter. The stock subsequently soared. But remember, this was well into the fourth quarter when they had a lot of visibility. As we know, they didn't cut prices that quarter and sequential earnings were up dramatically - something like 25%. I do not believe we can expect anything like that this quarter. I would like a nice holiday surprise but mathamatically, how can we expect that. I believe we may get surprises in early 1998 when the PII becomes over 25% of revenues and approaches 50% by mid 98. For example, in the recent past I believe unit sales of processors are up about 25% in the fourth quarter compared to the third. However, as we know prices will drop 20% on average therefore, there will be little or no growth in the fourth quarter considering weak flash, 6 cent charge for Chips + Tech. I guess what we can hope for are blowout unit sales this quarter due to great demand and and a little help from other areas of Intel's business. This brings me to my main question for Paul, Jules or anyone. The main concern now is the low end of the market. But how large really is that market? Do you know what the ratio is between Intel's microprocessor unit sales to businesses compared to consumers worldwide? I recently read (which I don't completely believe) Intel's ASP was $215 for all processors. I was recently in Comp USA and I noticed the systems which were selling the most were 200 MHZ MMX's. According to the latest figures that chip goes for $213 to the OEM. I know PII's are selling pretty well and they go for $401 to the OEM for a 233 MHZ and more for the 300. The best we can hope for this quarter is 25% of Intel's processors will be PII according to Paul Ottelenni's guidance (head of marketing and sales). Therefore, at most 25% of Intel's product line will have an ASP at or above $401. The question is how much will the other 75% be. Paul, I'd really like to know how many processors are sold to worldwide businesses as compared to worldwide consumers. I believe businesses are more apt to buy PII now due to the lack of significant drivers for the average consumer. Memphis isn't out yet and neither is a lot of fun graphics software, not to mention DVD. Also, how many Pentium Pros are sold per year? I read Intel didn't change the prices on that chip. Paul, we may also be surprised due to an improvement in yields. Paul Ottelenni keeps on saying they are cutting prices, due to yield improvements. How much can this really offsed significant price reductions to the OEM? To sum it up, I'm hoping for a great fourth quarter in terms of unit sales to get a positive earnings surprise (this may be wishful thinking). I also realize Intel's visibility was limited during the CC due to the increasing trend of build to order, or just in time style ordering by the OEM's (to be like DELL). Further out, I'm more confident about my Intel investment due to mostly PII processors in mid to late 1998, and of course the Merced which should dominate the enterprise market. I just have to figure out when to load up on 2000 leaps and stop selling covered calls. I'm covered on Nov 95's. I'd appreciate answers to my questions about business/consumer processor ratios, yields, as well as any comments. By the way, if the Merced and PII (slot I and II) phenomenon don't materialize, then most of us are in trouble anyway, but I highly doubt this will be the case. Thanks, Doug McLeod