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

To: Joseph Pareti who wrote (46679)	1/29/1998 9:20:00 AM
From: gnuman	Read Replies (1) \| Respond to of 186894

Joseph: Been away for three weeks and haven't touched the PC. Lot's of things seem to have happened during that period, a real dynamic industry. Some thoughts and suppositions. Market dynamics. In the past the market was pretty much constrained to building PC's around what Intel offered. Intel was able to phase out older products based on their schedules for new product introductions, and the makers adjusted their plans accordingly. That seems to be changing. I think there are three major components contributing to that change; the more technologically competitive products from AMD and Cyrix, the ever increasing power of Compaq over the market, and the advent of powerful low priced machines. PII I don't think the transition to PII is happening as fast as Intel had planned. Intel is now saying they will be fully transitioned to PII by the end of `98. But this is probably influenced by the introduction of Covington. I get the impression that Covington was a very rapid response to the Sub-0 market and it remains to be seen what impact it will have on Intel's 1998 performance. PC pricing Compaq's startling success in the low priced market, (and these aren't "toys"), has created major changes. All the makers seem to be focused on this segment. The expectations of buyers have changed considerably, and there is a major change in market share for the suppliers, with Packard Bell being the biggest loser. AMD's determination to remain 25% under Intel's pricing, (as evidenced by their recent price cuts), will continue to have an inordinate effect on the market. Considering their anticipated 10% share of chips they seem to have impact way beyond their share. And I still believe that Compaq will make sure AMD remains a viable source since they represent a big stick in pricing. Business market So far a case can be made that much of the increase in the PC market is incremental and fueled by new purchasers of the low priced offerings. But since these are relatively powerful machines well suited for the majority of business applications, I expect that they will become a large percentage of replacement machines in the work place. This would seem to have a lot of impact on the Intel product mix going forward. Intel It's pretty obvious that Intel is doing whatever is necessary to maintain market share. While they will probably lose a small percent to AMD, Cyrix, et al, their shipments will most likely increase since the market appears to be increasing faster than the available supply from the competition. The key question is what impact the changing market has on revenues and margins? Historically Intel was able to plan this accurately since they had control over the PC supplier offerings. If they didn't build it you didn't buy it. But now the makers have power that didn't exist a year or so ago. And they appear to be reveling in this new power. One thing we can be sure of, Intel will always dominate the PC market. But not in the same way they used to. I think, (as Intel has forecasted), there will be steady erosion in Intels margins, caused mainly by the three forces I mentioned above. I don't currently have any idea what this means to the "bottom line", but will keep thinking about it. As always, these are my opinions only. Gene

To: Joseph Pareti who wrote (46679)	1/31/1998 6:58:00 PM
From: gnuman	Read Replies (2) \| Respond to of 186894

Joseph Pareti, re: "any idea of Intel's '98 bottom line?" So far I've looked at pricing for Intel's desk-top CPU's. My data base is from a collection of Lehman Brothers price sheets. Jan'97/Jan'98 pricing. As noted by a number of analysts, Intel's latest price rounds have been more drastic than historically. Based on my data base, the ASP of the January 1998 product mix is lower than that of Jan 1997. (Of course there's been a change in product mix, since PII wasn't introduced till May). The PII product mix today has a lower ASP than the Jan '97 P55C, and P55C mix today is lower than Jan '97 P54C. (The additional fab costs of the PII will probably impact margins). December 1998 price extrapolation. If we use historic learning curves we can extrapolate the approximate prices for December 1998. These are about: PII333 $360 PII300 $265 PII266 $185 PII233 $135 P55-266 $150 P55-233 $100 P55-200 $95 P55-166 $85 These appear to be lower than Dec'97 equivalent pricing. Covington I don't have any idea where Intel will try to position this product, (it's probably performance dependent). If they position it between P55 and PII they'll probably need to change from their historic price structure. (Not much room between these two). If they use it to replace P55C the makers will want at least equivalent performance, which it may not provide. If they place it below P55C the price will probably need to be very low. From a marketing standpoint, I wouldn't like to see a "PII" below P55C. Compaq, et al, will have influence on this decision. New products Most likely the biggest factor for Intel this year will be the transition to .25 micron. This will lower costs and provide higher speed bin-outs. Historically, users got the speed enhancements for free. By this I mean, Intel typically has eight or so CPU's for the desk-top market. The mix continuously moves up the speed scale while prices for the product mix remain fairly constant. FY'98 earnings. From the Desk-top CPU aspect, it looks to me that Intel will need the projected increase in units shipped to maintain flat earnings. (It also partially explains the anticipated decrease in margins). This is in line with current consensus estimates. ( Note the consensus est. was $4.73 in October and was lowered to $3.97 this month). As noted by most analysts, they key unknown in all of this is the performance of AMD. If they crash and burn Intel will be able to flatten the learning curve. If AMD cranks out .25 micron product later this year I would expect earnings estimates to come down. As usual, these are my own opinions and aren't based on actual facts.