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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (38459)	12/7/1998 5:08:00 PM
From: Mary Cluney	Respond to of 132070

CB,>>>Do you, yourself, believe that Intel is fairly valued; if so, why, if not, why not?<<< Intel is one of my core holdings and my average cost basis is low. I have no plans to sell anytime soon (five to ten years). I see the PC business growing at double digits over the next 5 to 10 years. I don't see why we can't reach 30% penetration worldwide (meaning including India, China, Eastern Europe, etc) in that time frame. WRT competition, it is problematic whether AMD can keep up. Intel has 80% market share and spends more on R&D than AMD can generate in total revenue. As someone pointed out, even though Tom Kurlak reccommends AMD stock, ML does not recommend purchasing AMD bonds, which they rate as junk. I don't really know what that means - but If I'm an AMD shareholder, I would not like the way that sounds. What is even more interesting to me than Intel's postion in the PC market and their financial strength is the possiblity for Intel to compete in the high end of the Information Technology market. This market is dominated by IBM and to a much lesser extent by Amdahl, Fujitsu, Siemans, NCR, Unysis and may be some others. These are the mainframe systems where most of the cost for the year 2000 problem resides. These are the systems that were designed, developed, and implemented in the late 60's,70s, and most of the 80's. You find most of these systems in transportation (airline reservations, ocean shipping, trucking, customs, ...), finance (banks, insurance cos,), governments (international, US Federal, states, and local), military establishments (not only those of the US), and sundry manufacturing.... You get the drift - the market is huge. It has been reported to the US Congress that the y2k problem consists of at least 500 to 600 billion lines of computer program code that has to be remediated at an estimated cost of $1.00 per line of code. Whether they ever actually find all the money to fix this or if they don't fix all the problems and the consequences are not as severe as some would like you to think - that does not matter for me. What matters is that these are what they term mission critical systems - and they are operating on a proprietary OS (IBM MVS) using an obsolete programing laguage (mostly Cobol) on computers that are not favored by the young and influential computer professionals. This is in a market where Intel does not have any market share. This is the market that the Merced chip is designed to compete in. IMO, Intel will dominate this market in 5 to 10 years. The reason for this IMO, is not that IBM will lay down and play dead - but it is that they are caught between the rock and the hard place. This is a market where IBM has a large income and it is easy money. Their sales force are on site in the customer's location and virtually are there to take orders for upgrades. They can't rock the boat - because it is easy money and it is money that is expected. They are stuck with this outdated architecture. Most of the systems are character based and difficult to use. Go behind the counter of an airline reservation system and see if you can figure out how the system works. You have to go to school to learn how to use the system - and there are codes that have to be memorized. The same system that places you into a seat in an airplane cannot tell you the status of your frequent flyer miles. These are giant systems that are collapsing because of needless complexity. I may be digressing here somewhat - but my point is that here is an opportunity - something that I see and that I feel is not and can not be factored into the current valuation. On top of this, I am very comfortable with the current managment and it is also something that cannot be factored into the current valuation. This is something that I try to stay on top of. I try to assess the character of the management - which to me is more important than anything that you may find in a balance sheet. I am trying to use my expereinces in life to assess the character of individuals that may have important consequences for the companies they lead. For instance I like Craig Barrett at Intel. I don't like Jerry Sanders at AMD and I don't like Eckhardt Pfeifer at Compaq. I see strengths and I see fatal flaws in character that I think will translate into success or failure. I know I am rambling here - but the short answer to your questions is that I don't know where Intel is going in the near term (6 mos. to 1 yr), but I like Intel in the short term and for the long term. I am not selling. And, the only reason why I may not buy more on pull backs is because I may be too heavily weighted at this point. I hope this helps, Mary