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Technology Stocks : IDTI - an IC Play on Growth Markets -- Ignore unavailable to you. Want to Upgrade?

To: Gordon Quickstad who wrote (4947)	11/26/1997 12:50:00 PM
From: Rob S.	Read Replies (2) \| Respond to of 11555

AMD may be planning to use the slot 1 physical architecture and not use the patented interface specifications. Despite it's questionable advantages, (probably more geared to monopoly advantage than technical advantage), slot 1 has the power of Intel behind it and a growing infrastructure to support the manufacture of slot 1 socket and motherboard components. Rather than duplicate the infrastructure at great cost and risk, they have chosen to make the proposition much easier for the industry. Motherboard manufacturers, and system logic chip-set mfgs. can largely utilize their investments in developing and manufacturing Intel compatible slot 1 products to manufacture AMD/DEC Alpha compatible Slot1-AMD motherboard products. The strategy makes a lot of sense to me. "We'll give you a better MPU and interface system than the Intel Slot 1 PII at a lower cost and allow an upgrade path to a 400 MHz+ Alpha". The name of the game for AMD is to leverage industry momentum in any way that they can. AMD has huge investments in designs, further R & D, and facilities (NexGen $450 million acquisition, $2 billion FAB 25, $1.2 billion Dresden, Germany FAB being built, ongoing R&D ~$400 million, etc.) - they must go head-to-head against Intel in the primary PC markets in order for these investments to pay off. IDT/Centaur, on the other hand, have less than $50 million so far that is tied up directly in the development and manufacture of the C6 - (That's not counting the Hillsboro fab which, if fully outfitted and utilized for the C6 family would add a few hundred millions to the cost). The very low cost of entry for the C6 combined with the size and orientation of IDT allow it to be targeted proftiably at nitch and secondary markets as well as commodity PC markets. These markets may either be bellow the threshold of profitability for AMD or Intel or just "not wirth the effort" due to relative size but fit nicely into the market mix for IDT. A $10-$60 million market may have minimal attraction to AMD or Intel but a few of these "nitch" or secondary types of markets would add up to grow IDT's overal business nicely. The internet and communications technologies will be the greatest drivers in an increasing number of applications. For these products to satisfy the thirst for consumer and third world markets, they must be priced well bellow the common PC. The Chinese, for example, see the need for vast quantities of PC/XC type devices for use in households and educational institutions. They are targeting price points that current sub $1,000 PCs have yet to reach. They also have unique language and technical requirements that when combined with the huge quantity requirements and state-directed procurement processes, allow them to direct the development of new system architectures and program environments that may be only partly compatible with the WINTEL environment. The Chinese had earlier announced an agreement with SGS Thompson to develop NC type devices for use in about 5 million classrooms. That device is to be based on SGS's 486 core based "systems on a chip" part that is being developed for a targeted price of $30 each. I understand it will include the MPU core, sound subsystem, meory management and system I/O functions - sort of like a scaled down Cyrix MediaGX. It will operate at about the performance level of a 486-80 and will bump up to 486-120 class performance. This is obvilusly bellow the requirements of most U.S. and European applications but may be well suited to many embeded or Network Appliance type applications. IDT is not Intel or AMD and thinking about their prospects should be along the lines of their strengths and the relative opportunities that the diversified markets have for them. IDT is a very small company compared to either Intel or AMD. Heck, Intel spends far more on advertising and promotion than IDT's entire revenues! Why this paltry little company should look exciting to investors is not because they can "go up head-to-head against the big guys" but because the diversification and commoditization of the X86 part of the information technologies market is expanding rapidly, allowing this small player to leverage technology and customer relationship strengths to much more dramtically increase revenues and earnings than can be hoped for at Intel or AMD. Where in the world is Intel or AMD or NSM going to increase their market share or help to create new product markets that will double or treble their overall business in the next three to four years? Bottom line is that markets are expanding to new types of intelligent end user and networked devices, the importance of brand loyalty is being erroded ("Intel Inside" branding strategy will lose importance in existing markets and have far less advantage in new markets), and price points are shifting dramatically - only about 12 months ago Andy Grove protested to the effect that PC buyers wanted full-blown systems with the highest performance Intel processors and wasn't concerned that much about price or willing to consider alternative. Grove said that Intel wasn't interested in the sub $1,000 PC market; that this was doomed to be a temporary thing with faltering market share. Andy had to change his tune after being beat over the head by Cyrix and Compaq who helped to spur the sub $1,000 category to capture over 40% of the overall consumer PC market (and growing). Now Intel pronounces that sub $1,000 PCs/NCs will not be attractive to corporate buyers - Wrong again. IDT should find a lot of opportunities to plug thier parts into and to work with OEMs on new categories of consumer and business applications. The biggest question I have is how fast can they ramp production and how well is IDT doing on yields?