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

To: Fred Fahmy who wrote (65471)	9/26/1998 8:47:00 AM
From: gnuman	Read Replies (1) \| Respond to of 186894

Fred Fahmy, re:<First and most important, when Intel cuts prices they still make obscene profits. Second, it is AMD's flawed strategy of insisting that they remain 25% below Intel's price that has accelerated AMD's financial ruin.> I was a little surprised that IDC is forecasting only 90 Million PC's for 1999. If this proves to be true I think it will have inordinate impact on that part of Intel's business. With AMD in full production next year it's clear that W/W supply will greatly exceed demand. And to me this means an escalating price war. While Intel will continue to make obscene profits, (by normal standards), the margins from this segment of the business will continue to shrink. And as this is the first full year of K6-2 production, (with K6-3 and K7 coming on-line), I expect AMD will continue to grow share. If I were to allocate AMD 20 Million units, (5M/qtr), this leaves Intel with 70 Million. (I think I remember reading that AMD targets 7M/qtr). At $215 ASP for Intel I get about $15 Billion for this segment of Intel's business. This may be generous, considering what I think will be an escalation of the price war. So I think Intel needs about $10 Billion in their other businesses to reach $25 B for the year. This would require 40% of revenues to be in other businesses, up from about 27% in Q2. To me the key is still Xeon. I think they need to sell something like $3-4 Billion Xeon's to reach the $25 Billion number and prop up margins. If they then achieve 24% net profit for the year I get $3.40/share. (Note, this is about 4% points above Q2'98). Still very good by anyone's standards, but basically flat yr/yr revenues and profits. In fact, this would mean essentially three consecutive years of flat revenues. Clearly AMD will continue to use price as a lever to buy market share and get volume efficiencies. And the makers will foster the price competition. While many on the thread think this leads to ruination, volume is much more important to profits than price. Twenty million CPU's at and ASP of $80 is a lot better business and more profitable than five million CPU's at $100. BTW, I think the 90 Million PC number is low for 1999. I think price elasticity in the market, particularly the sub-$700 PC, will trigger a new segment. But if Intel competes for this segment, I wonder if they can hold GM's? Just my opinions, of course. Gene