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To: The Phoenix who wrote (53132)	8/29/1998 3:07:00 AM
From: djane	Read Replies (2) \| Respond to of 61433

Intel to buy a networker? research.instat.com Inside..Your Network? Intel Inside..Your Network? Intel has been the dominant player in the microprocessor arena for the last fifteen years or so and is the largest chip company in the world. Life is good, right? Well, not if you're used to the phenomenal rates of return that the company and its stockholders became accustomed to for most of the nineties. Up until the last year, things had been extremely good for Intel and its stockholders, as the company's sales, earnings and, naturally, its stock price went up and up and showed no sign of stopping. But things have changed. For the past year, Intel has suffered a heretofore unimaginable slowdown in both its top and bottom line, as revenues year over year have flattened and income has gone down. The reasons for this are many, but many of Intel's problems can be summed up by pointing to the long term problem of an increasingly commoditized PC market and the accompanying decline in prices of the components within these boxes. The sub-$1000 (or $800 or $500) computer has led to an emergence of a more cost conscious PC buyer and some legitimate (if 10% or so market share is legitimate) competitors in the CPU arena. So, what is Andy Grove thinking about now that he has relinquished the role of CEO and is concentrating on more long term, visionary matters? How to combat eroding margins and get sales back to the phenomenal growth rates of just a few years ago, that's what. And you can believe he's looking outside of the microprocessor world. One idea he's likely considering is further expansion into the networking market. Intel is a major player in the Fast Ethernet adapter card market and has a growing business in the LAN Switch and Hub markets. But, comparatively, these businesses are dwarfed by Intel's mammoth chip business. However, Intel has made networking a strategic growth area and it would make sense for Intel to expand further into this area. Does it make sense for Intel to buy a networking company rather than build one from the bottom up? The following points make for a compelling argument: As stated above, Intel's main business (microprocessors) has suffered from declining ASPs and increased competition. Intel's sales have largely been flat for the past year and its income has been going down due to smaller margins on its chips. This has led to an uncharacteristic slump in the performance of the company's stock (although it has rebounded as of late) over the past year. An increased commitment o a high growth area such as data networking could be the growth engine for Intel as it moves into the next century. Intel is already familiar with the networking business. Its share of the Fast Ethernet NIC market is over 23% for 2Q 98 and the company also has a switch and hub product line. The Intel name is a franchise on the same level as Coke and Microsoft. The company should benefit from strong brand awareness as it migrates further into new business segments. Looking at the company's balance sheet for the quarter ending June 27, 1998, the company had cash and short-term investments of over $7 billion and nearly no long-term debt. Financially, the company is primed to make an acquisition. If the company were to make a move such as buying a large networking company, it would want to move soon. With Nortel's bid to buy Bay Networks, the race is on to buy as companies such as Lucent look to throw their hat in the acquisition ring. Intel's knowledge of silicon design and manufacturing. Many networking companies design their own silicon and the expertise that Intel could bring to such a combination would be significant. For Intel to buy a data networking company would be a monumental paradigm shift for the company and would rock the foundations of the networking equipment world. The company may choose to stay mainly in the industry it currently dominates and simply expand further into growth areas within the semiconductor market, such as making more communications intensive, hot growth chips such as DSPs. Only time will tell. But if Intel does want to jump in the ring in the impending battle for data networking companies, it may not have the luxury of time. Mike Wolf, Industry Analyst, Networking Group