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

To: Ramsey Su who wrote (53130)	4/14/1998 7:50:00 PM
From: dougjn	Read Replies (1) \| Respond to of 186894

Ramsey, I'm not in Intc now either, though I tripled my money, from 50.25 to 150 in the 96-97 period. Was hard for me to sell. Basically, I honestly did fear this all was coming. I think Intc is gonna be a lousy investment for a while. I know it popped in after hours, but think that's meaningless. Heck, it COULD go up tomorrow, but I rather doubt it. I listened to most of the conference call. (Missed the beginning. Will listen to the tape.) Near term isn't good. Longer term is fairly uncertain. Disaster does not loom, of course, but declining margins may. The Merced chip in 99 is an entirely new market, with huge promise. Why? Simple. No amount of horsepower now on the horizon is too much in the workstation / graphics display station / high end server markets. (I.e., the Sun / HP / SGI markets of today.) And Intc can under price and out produce the competition. And has the aura of invincibility about them, which will probably cause the software support to be robust. Intel's manufacturing prowess has the potential to really conquer that market. As long as the software is there. That is the issue. The Merced will run Pentium software, but at no huge advantage, if any, over the Pentium then shipping. (The utility there is that your high horsepower graphics workstation can also run MSFT Office products, and do your finances w/Quicken, etc., unlike your Sun machine.) It is also supposed to run HP workstation software. And MSFT is supposed to have a version of NT in the works for it. So software migration is the issue. There is no lack of hunger for speed in that market. But the NEW problem that Intc faces right now is that there is a real market slowdown in hunger for higher speed in the mainstream PC universe. Instead people want price. (And they do want Internet speed, but the processor isn't the bottleneck there.) This is the first time that has happened in the PC world. Hardware had in the past always been at least a bit too slow for the latest more graphical software. No longer. And not in the next year or two prospect either, with Win98 or NT 4 or 5. (Which mostly need huge ram.) This is really a new problem for Intel. The last big problem Intel faced was in 1986, when it was losing money big time in Ram chips it used to make due to Japanese underpricing and better manufacturing technology, and it also faced much faster Motorola chips. Intc dumped its Ram, vasting increased its manufacturing ability (via Craig Barrett) and came out with the 386, which was a much bigger leap than the 286 over the 8086 or 8088. It was after this period that the Wintel dominance of the PC world became increasingly solid and clear. But the mass demand for speed was never in doubt. Which is a BIG problem for Intc's earnings. Not because it cannot defend its share. It can. It can produce chips cheaper than anyone. But its margins are increasingly coming under pressure. Intc hopes it can start migrating people to its higher end P II chips using the 100mhz bus (faster memory access mostly) in the 2nd half. A la as it has in the past. And no doubt it will in part. But not as much in the past I figure. And worldwide PC growth is OK, but not barn burning. So you have middle to low teens PC unit growth, at increasingly lower price points. And while costs will drop, they are very unlikely to keep up. So you have flat or declining earnings. Until and unless Intc can richen its revenue base with higher priced high end chips. Which it sees happening in the 2nd half a bit. Though I think that's the best case given the trends. Merced is the way out, but probably not until the end of 99 or even into 2000 (for some volume to matter enough). Not very pretty, I think. My honest opinion. Doug P.S. I'm getting pretty warmed to bulking back up on Q about now. What you thinking?