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

To: Road Walker who wrote (64010)	9/5/1998 7:09:00 PM
From: nihil	Read Replies (1) \| Respond to of 186894

RE: Margin ... I can try. First, understand that I am approaching the problem from the strategic POV. The vision of Intel (one billion connected computers) to my mind is really what drives Intel. Employees (who have options) and stockholders (and directors) agree that we are in this for the long term. We also agree that competition is unavoidable and that monopolistic behavior is illegal and short-sighted. Concentrating on margin percentage in such a system is suicidal. We are not interested in profit rate or return on equity in the short-run, but in driving the market by technology and price. The fact that advertising and brand-building allows Intel to sell at a premium is wonderful, but if necessary, Intel will cut costs to achieve its long term objectives. The two main objectives are: (1) facilitate growth of demand for high-speed PC mpu's; (2) develop high-speed, high-reliability mpu's for servers and supercomputers. Intel is not interested in producing a cheap slow crippled chip for Segment 0, and has introduced the Celeron 333 which is now a hot chip indeed. If it cannabilizes PII, tough. Intel is not going to forfeit Segment 0 or try ot force people to buy PMMX etc. Celeron is made in state-of-the-art fabs and replaces PII in production as well as in demand. If this causes a drop in (short-run) gross margin dollars, then tough. Intel cannot afford to give up the mass market and should not pursue immediate profits at the cost of market share. There is another reason as well. If Intel gives up share in the low-margin segments, its competitors will generate cash and will be able to (1) expand research, and (2) increase capacity. This invitably means a further market share loss. Short-term market share sacrifice by keeping prices high creates an umbrella to protect the competitors who will not miss the opportunity to expand and become better competitors. Obviously it takes time to expand and it can't be done without money. AMD, for instance, has heavy obligations on Fab 30, and might not make it. Given the opportunity to charge higher prices, AMD will become a better competitor in the future. Similarly, Intel's commitment to driving prices down makes its customers more comfortable. Nobody, even Dell, likes to give Intel 60% gross margins. But if Dell is sure that Intel is driving to increase the market (especially in China), there is a mutual alliance that makes sense for both. [Clearly if you want to sell lots of chips in China you have to be cheap. The meeting between Ziang and Barrett is very important for both.] So what does anyone in business want? We want steadily growing share prices, which means steadily growing EPS. No wiggles. Look at Intel's 10-year chart (or Microsoft or Dell) and you see unsustainable growth. Everyone wants to imitate these guys. Screwing around with DOJ is not the way to go (thus Intel has pretty much abandoned its aggressive hard-ball litigious strategy which didn't work very well and looks like monopolistic behavior. It still has to act defensively, but ultimately it has to pay to settle and does so as long as it is affordable ( < $1 billion). It accommodates -- an art Gates needs to learn. To get this nice looking exponential curve you have to have growing markets or growing market share. Dell can still gain market share, and will --- wait until its learns about cheap. Intel can't gain market share (except in servers), and has to go for cheap, and gtrow the market. I suspect to push up earnings per share, Intel will have to use leverage. It seems weird to borrow money to buy back stock but that is the name of the game. I would prefer that Intel use some of its capital to drive the price of NIC's to zero ($13.95 ain't bad) Ethernet on Board is great. Intel should push the MOBO business, and should work on a really good system on a chip. Intel should use this with Flash to create a decent cheap PCS pocket computer (QCOM's intelligent phone is the idea)). This is the future. Intel has to develop the technology and chips and push it out to its OEM's. If Intel takes care of product progress, the margins will take care of themselves. If it acts defensively, tries to protect profits quarter by quarter and loses market share, it loses the future. If mathematics of discounting future net profits interests you, go to Excel, put down 20 years of predicted net profits year-by-year for three different scenarios -- "/ or 20 per cent", "_ or no growth". and "\ or decline from 30% to nothing", choose PV from the command menu, and some reasonable discount rates. There isn't any choice. Intel has to grow faster than value of PC market grows. Intel has to get into new markets or improve the PC market and keep or grow its share of this richer market.

To: Road Walker who wrote (64010)	9/6/1998 9:47:00 AM
From: John O'Neill	Read Replies (3) \| Respond to of 186894

Does anyone have thoughts on the importance of faster micro processors vs the importance of bandwidth on the internet.? I seem to be more limited by lack of bandwidth (perhaps because of my very limited use/knowledge of the computer)....If I had a more powerful MP, I don't think it would speed up my usage of the internet. Is this correct? Intitially I needed a pentium to run Windows....is the value of a more powerful MP mostly for non-internet use? (IE business use / laptops /spreadsheets / etc. any info appreciated.... JO