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

To: John Koligman who wrote (55649)	5/15/1998 7:38:00 PM
From: kolo55	Read Replies (3) \| Respond to of 186894

Suggest you read the May 18 Forbes article on stock options. Actually Forbes has been pretty slow on the uptake. Barron's has been warning about this for some time. You wrote:What you have outlined is pretty similar to the situation at IBM, but they just keep buying back stock and the street apparently buys it. What do you think the difference is (other than Gerstner, who apparently is a 'street favorite'). Essentially Intel earned $5.157B last year. But the fair value of the in the money employee options at Intel rose by $5.438B. Now this is primarily due to the run-up in the stock price. But if this continues year after year, what does it mean? Essentially the employees are getting increased stock wealth equal to all the wealth created by the company!! How can that happen? Only as long as outside shareholders continue to bid the price of the stock higher and higher. Its sort of a Ponzi scheme. Everything is fine, until the truth dawns, then it can unravel the other way. Ask yourself, how is it possible for employees to make $5B in increased wealth every year, when the company is only earning $5B every year? Eventually the stock price increases will have to slow dramatically, so the increased value of their options is only a fraction of the wealth created by the company (historically 7-10% for the whole market instead of the 100% at Intel last year). What happens if the stock price drops significantly? Well then the value of the options goes the other way. But often in these cases, companies simply reprice the options to a lower price (as AMD has done). Why pick on Intel instead of IBM? Well in the Forbes article, they looked at the 100 largest companies in the US, and 11 are seeing the increased value of employee options exceed the company's earnings. Intel is one of these companies. Also there is a list of 13 of these companies where the increased value of EE options exceeds 50% of earnings. IBM is on neither list. Again, in a given year, this is no big deal. But if this keeps up over a number of years, its a strong indicator of an unsustainable stock rise- a bubble if you will. Paul