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

To: Glenn D. Rudolph who wrote (59322)	7/4/1998 1:45:00 PM
From: gnuman	Respond to of 186894

JIT. I don't think Intel will enter into a JIT contract without at least a 90 day forecast from the box maker. Nobody wants to build product on guesses of future demand. Intel probably builds to forecast with user incentives for taking product to that forecast. I think the box makers have some upside price exposure if they want more than forecast. Intel in effect becomes the warehouse, but in partnership with the makers. I think that's really the definition of JIT. Intel ends up owning excess product in a down market instead of the makers. But the makers also have exposure when the market turns. Product above forecast could turn into an allocation situation, and Intel finds itself back in the drivers seat. It's a dicey game for both. Right now the box makers have the power, but they know from experience that can change. And if product becomes allocated I would expect eventual price increases against future demand. And even with JIT, the pricing is most likely based on forecasted usage. (Just because a maker has a JIT contract doesn't mean he get's "most favored pricing." ) Another issue for Intel is product mix in inventory. This is probably the toughest decision. If a maker decides to switch his Celeron orders to Mendocino, he probably can do so at some minor price concessions, and Intel needs to figure out what to do with excess Celeron product. So I don't think JIT is as ominous as it sounds. In a down market Intel will reduce production, (as they already indicated they will, and could still end up with some inventory issues), but the makers need to be careful that when the market turns there is sufficient inventory to meet their demands. If they come back to Intel and say they need twice as much as they forecasted, Intel might say sorry, but production lead times are such we will have to allocate product. Intel loves allocation.