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

To: Road Walker who wrote (46768)	1/30/1998 7:32:00 PM
From: Paul Dieterich	Respond to of 186894

FWIW, Lehman's on Intel in '98: Slow start, fast finish... Headline: Intel Corp: Summary of Upcoming Basic Report Update - X86 Market Share Author: M. A. Gumport, CFA/C.Gangi 1(212)526-5368/3754 Rating: 3 Company: INTC,AMD,IDTI,NSM,STM Country: EPS CUS Industry: SEMICO Ticker : INTC Rank(Prev): 3-Neutral Rank(Curr): 3-Neutral Price : $79 3/16 52wk Range: $102-63 Price Target: $ 90 Today's Date : 01/28/98 Fiscal Year : DEC ------------------------------------------------------------------------------ EPS -1997-- -----1998-------- -----1999------- -----2000------ QTR. Actual Prev. Curr. Prev. Curr. Prev. Curr. 1st: 1.10A* 0.93Ex 0.93Ex 1.03E 1.03E ----E 1.15E 2nd: 0.92A 0.95E 0.95E 1.07E 1.07E ----E 1.23E 3rd: 0.88A 0.96E 0.96E 1.08E 1.08E ----E 1.27E 4th: 0.98A 1.01E 1.01E 1.17E 1.17E ----E 1.35E ------------------------------------------------------------------------------ Year: $ 3.88A $ 3.85Ex $ 3.85Ex $4.35E $ 4.35E $ ----E $ 5.00E Street Est.: $ 3.97E $ 3.97E $4.59E $ 4.59E $ ----E $ ----E @-Includes 1Q96 $-0.01 inventory write-down; -Split adjusted; x-1Q98 excludes $-0.06e in process R&D write-off for anticipated acquisition. ------------------------------------------------------------------------------ Net Cash per Share : $6.16 Revenue (1998) : $28.8 Bil. Return On Equity* : 32.6 % Proj. 5yr EPS Grth : 15.0 % Shares Outstanding(z): 1785.0 Mil. Dividend Yield : 0.2% Mkt Capitalization : $141.3 Bil. P/E 1998; 1999 : 20.6x; 18.2X Book;Price/Book : $11.95/sh;6.63x Convertible : None Disclosure(s) : C Puts in Equity unexercised; z-Share equivalents ------------------------------------------------------------------------------ ** X86 UPDATE: 4Q UNITS SOFT; 1Q COULD BE SOFT TOO; EXPECT STRONG 4Q98; INTC'S SHARE STABLE 4Q97, LIKELY UPTICK 1Q98; THEN DEPENDS LARGELY ON AMD-$18 3/4-3 ------------------------------------------------------------------------------ POINT 1: ODD YEAR RULE--4Q97 WAS SLOW--NO BIG SURPRISE--EXPECT STRONG 4Q98. Vs. 3Q97, 4Q97 x86 microprocessor (MPU) units were +4.7% (25.3 bil.), revenues +4.4% ($5.4 bil.). Every even year since 1992 (when consumers emerged as a real force) has been seen strong 4Q MPU unit volume. Every odd year has been soft. Perhaps it takes 2 years between strong selling features (1992 the CD ROM, 1994 the Pentium, 1996 internet?). Rule or no rule, we think 4Q98 should be good and view our 1998 assumptions as conservative. -------------x86 MPUs: 4Q vs. 3Q % change----------- 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98e Units 3.1% -0.3% 19.1% 0.1% 18.9% -1.5% 15.8% 4.7% 12.3% Revenues 11.2% 22.7% 40.5% 5.2% 13.3% 6.5% 32.4% 4.4% 8.9% POINT 2: IF 4Q WAS WEAK, ARE ODDS OF A 1Q REBOUND BETTER? NO. A SLOW 1Q98 IS VERY PLAUSIBLE. After a weak 4Q, the gut response is to expect a strong 1Q. Unfortunately, the pattern is less clear: Some strong periods (4Q94) were followed by fairly good periods (1Q95); some weak ones (4Q95) were followed by weak periods (1Q96). The one trend that does seem evident is a general deceleration in 1Q performance in recent years. Intel's own guidance of sequentially flat 1Q98 sales seems OK and our estimates conservative. ------------x86 MPUs: 1Q vs. 4Q % change------- 1Q91 1Q92 1Q93 1Q94 1Q95 1Q96 1Q97 1Q98e Units 18.0% 13.4% 6.4% 11.2% 5.3% 3.9% -0.1% -0.9% Revenues 19.8% 7.8% 13.6% 17.5% 11.9% 3.1% 1.3% -0.1% ...(Cont'd) INTC (Cont'd) p.2 POINT 3: INTEL's 4Q97 SHARE WAS ALMOST FLAT; EXPECT A 1Q98 UPTICK. Importantly, AMD's older 486s, K5s, and 5X86s are in steep decline, and it is unclear if AMD can increase 1Q98 K6 output (or produce 0.25 micron parts at all). Also, Cyrix 4Q97 was in a product transition (M1 to M2), and new parent National (NSM - $25 7/8- 2) needs time to ramp its new 0.25 micron 8 fab. So, Intel likely shows a slight uptick in 1Q98 market share. x86 Market -% change 3Q/4Q----- -% change 4Q/1Qe---- Units Dollars Units Dollars Intel + 4.3% + 4.5% + 0.9% + 0.4% AMD + 14.7% + 15.9% -17.4% -10.2% Cyrix - 8.4% - 12.5% - 4.8% - 7.4% Total MPU + 4.7% + 4.4% - 0.9% - 0.1% POINT 4: 1998 PROMISES TO BE A MIRROR IMAGE OF 1997 WITH UNITS GROWING MUCH FASTER (+24%) THAN REVENUES (+17%); OUR MODELS INCLUDE THE SLOWEST DOLLAR SALES GROWTH YEAR SINCE 1989. In 1997, MPU units grew 29% but units grew only 18%. The year started fast but ended slowly. A shift in mix towards higher priced Pentium 2s helped sales. By year end, however, units had slowed and mix had shifted to lower priced units. In 1998 we see a slow start but a fast finish with an ongoing shift in mix to lower priced units. x86 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998e Sales 224% 101% 10% 56% 70% 53% 64% 40% 35% 29% 29% 17% Units 199% 43% 27% 29% 32% 27% 26% 19% 30% 21% 18% 24% POINT 5: 1997-1998 COMMON THREAD? A MUCH MORE COMPETITIVE ENVIRONMENT THAN IN THE RECENT PAST. That statement is fraught with risk. AMD is engaged in a bet-the-company gamble to bring up 0.25 micron process technology (and fully convert 6 months ahead of Intel). NSM is digesting the Cyrix acquisition and reevaluating IBM's x86 manufacturing and product rights. SGS-THOMSON (STM -$ 66 7/16-1) seems to have backed away. IDTI-$12 1/16- 2 is only just beginning volume. On balance, we think competition will intensify. After all, the product is a well defined standard with 70% gross margins. SUMMARY: CAUTIOUS ON INTEL AND THE X86 MARKET IN GENERAL; AMD IS THE CRITICAL VARIABLE. Intel's stock performance this year seems likely to be a mirror image of AMD's success/failure in bringing up volume 0.25 micron parts. Short term trends now favor Intel (stabilizing share; unit volume may exceed conservative projections), but trends through 1998 are less favorable. We continue to favor other major chip makers with improving profit margins. Mkt. Share ----Intel---- ----AMD------- ---Cyrix------ -----Other---- Units $ Units $ Units $ Units $ 1992 66.4% 86.3% 30.2% 12.7% 1.7% 0.8% 1.7% 0.2% 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% 4Q97 83.6% 93.9% 8.6% 3.7% 4.7% 1.5% 3.1% 0.9% 1Q98e 85.1% 94.3% 7.2% 3.4% 4.6% 1.4% 3.2% 1.0% 2Q98e 82.1% 93.1% 8.5% 4.1% 5.3% 1.4% 4.2% 1.5% 3Q98e 78.6% 91.4% 11.0% 5.3% 6.0% 1.7% 4.3% 1.6% 4Q98e 76.3% 90.2% 12.8% 6.3% 5.9% 1.6% 5.1% 1.9% ------------------------------------------------------------------------------ Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities.