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

To: Barry Grossman who wrote (41605)	12/8/1997 2:53:00 PM
From: Petz	Read Replies (3) \| Respond to of 186894

Barry, re:<You are correct about Intel's guidance re long-term margins> And you are correct that many of the new businesses, such as set top boxes and digital TV can not bring margins of 58% like the CPU market. But I don't think their margins will be anything like 50%, more like 30%. These areas have no particular monopolistic advantage to Intel and, in fact, nearly 100% of the Internet boxes you can buy today use RISC CPU's selling at $20-$40. There is no room for a 50% profit margin on such a device. I believe the x86 CPU market is also becoming a commodity-type business and Intel's margins in CPU's will fall to the 50% area even as its competitor's (AMD, NSM, IDT) margins rise from negative to the 30% area. A single fab is all that is necessary to take a big chunk of the market. 5000 8" wafers/week * 52 weeks * (25400 mm2 area per wafer) / (81 mm2 area per chip) * 0.9 (theoretical yield) * 0.6 (actual yield) = 44 Million CPU's The above arithmetic shows that at 60% yield, a company like AMD could produce 44 million CPU's in a single fab. (The die size used is for the K6-3D processor to be introduced in few months.) Even a 1.5 billion dollar fab is cheap, if it can make 44 million chips at $100 each = 4.4 Billion. Clearly, CPU prices will be falling fast, and Intel's 58% gross margin will soon be history. PS, never buy a stock with a P/S (price to sales ratio) above 1/10 the growth rate in sales. (i.e., P/S of 3 is OK only if sales growth of 30% can be maintained.) Petz

To: Barry Grossman who wrote (41605)	12/9/1997 12:53:00 AM
From: Jeff Fox	Read Replies (2) \| Respond to of 186894

Barry, re: Understanding Intel gross margin This is only one example of why [Intel] expects LONG-TERM margins to tend toward 50%. Intel has said they are concerned about TOTAL PROFIT DOLLARS - not margins. You have it figured it out! Amazing how many analyst have failed to understand that Intel's margin guidance is about new Intel business intiatives, not CPU margin erosion. With the transition to .25 micron process CPU margins should sustain or improve. The lower margin forcast is conservative hedging to allow for "product mix", which is another way of saying that Intel plans to be aggresive about new business ventures to expanded revenue. Think about it. How many new opportunities can you think of the guarantee 60% gross margin; especially when they are new? You are going to have winners and losers even if your execution is top notch. Intel will go for opportunities that are good business opportunities. Such ventures are great earnings generators at 50% gross margin. I believe that Intel plans to grow revenue underneath its extraordinary profits to secure the company to a much more sustainable long term business model. This is in addition to CPU market growth. Jeff