Hi T2
OK Lets give your question further thought as you obviously were a little disappointed at my general and somewhat surface response. As you know, Kemble has of late pointed out that with Intel doing well it only means good things for Dell.
Your question as to what benefit to the shareholders of Dell would Intel's earnings have, is a fair enough one. Jim Kelley whom I regard as one of the more cogent, intelligent and gifted in this area provided a more specific and respectful answer than I did with my flippant ,albeit clever witty and most entertaining response (do I hear the sound of one hand clapping?) to your inquiry.
Can't speak for Kemble ( he more than holds his own in speaking volumes for Dell) and why he tied Intel good earnings as a plus for Dell. However I do see that statement as reasonable.
As you may know, Dell was again approached by AMD way back in March of 1997 when much was made of AMD ability to provide more chip at a better price etc. At that time Mr. Dell in no uncertain terms stated that Dell computer has ever intention to continue with its relationship with Intel and further went on to extol Intel's place in Dells plans etc. As you probably know the lines were drawn with Intel and AMD locked in battle and Dell firmly planted in the Intel Camp.
Just about a year later on March 3-6-98 (my birthday) Intel's announcement which was being publicized. Its first-quarter earnings will be lower than expected, this was said to have reverberated throughout the world's financial markets. To Wit:
"After Wednesday's stock-market close, the world's biggest chip vendor said orders from PC makers were lower than expected, and the company predicted revenue for the current quarter would be about 10% lower than the previously forecast $6.5 billion and earnings would also suffer. Yesterday, U.S. technology stocks -- already at hefty valuations -- took a tumble, and many foreign stock markets followed suit. Intel's stock fell 10 13/16, or 14%, to 75 5/8. The Dow lost 94.16 yesterday to close at 8445.08, and NASDAQ slipped 47.80 to close at 1711.90.
Adding to the uncertainty were statements from Intel that officials had not yet narrowed the source of the problem. "In America and Europe, our shortfall is largely driven by big OEMs," says spokesman Howard High. "What's surprising is that we don't see a problem in Asia."
Officials cannot point to any particular segment of the company's processor line that's taking a beating. But High says the transition to Pentium II has been going reasonably well. Results at Dell Computer confirm that. During Dell's most recent quarter, 70% of the direct marketer's PC sales to companies had Pentium II chips, a spokeswoman says. She adds that Dell's market strength and high level of Pentium II sales is showing no signs of slowing.
Although some people point to the low end of the market for Intel's woes, High counters that rivals Advanced Micro Devices and National Semiconductor also have lackluster forecasts.
Buyers may be holding off in anticipation of new products and price cuts from Intel in April, according to analysts. Intel will revamp some of its key processor lines starting with an April 2 launch of the first Pentium II chip for notebooks. That will be followed by a release of Celeron, the first Pentium II chip for the sub-$1,000 desktop market.
Intel will also come out in April with new chips for workstations and servers. These new Pentium II processors will be available at clock speeds of 350 MHz and 400 MHz. They will also be Intel's first chips that have a 100-MHz connection to memory, which should show a significant performance boost. Current generations have a 66-MHz memory bus.
Intel has a precedent for weak sales when its vendor customers and end users are anticipating a new product introduction. "In the fourth quarter of 1996, sales were lackluster because MMX was delayed," says Rob Adams, an analyst at CIBC Oppenheimer in San Francisco. "Then in the first quarter of 1997, with MMX, they came out really strong. We think there will be a recovery in the second half of 1998."
Also, there is some speculation that overly zealous buying during the fourth quarter in anticipation of spectacular holiday sales may have stuffed retail channels. And a slower-than-expected transition by vendors' build-to-order sales efforts may not have entirely cleared out old inventories."
This brings us to the present. Here is what recently took place:
"Chip maker Advanced Micro Devices (NYSE: AMD) flopped $5 1/4 to $22 1/2
after reporting Q4 EPS of $0.15, up $0.06 from last year but $0.04 shy of
the First Call mean estimate. Revenues increased 15% sequentially and 29%
year-over-year to $788.8 million, which the company attributed exclusively
to higher sales of its K-6-2 processors with 3DNow! technology.
Disappointed, at least five brokerage houses downgraded the company today,
although Needham & Co. bucked the trend and issued an upgrade to "strong
buy" from "hold." While AMD said it shipped "hundreds of thousands" of its
high-speed 400 MHz K-6-2s in the quarter, a manufacturing glitch apparently
kept the firm from taking full advantage of strong market demand. The
company reportedly said it has resolved the problem and expects to ship more
of its high-margin chips during the current period."
You are certainly aware of Intel's recent glowing report and how well they are now doing so reproducing it here is redundant. Intel seems to really have their stuff together and has announced its willingness to spend their money in the areas that will continue to insure their dominance in the marketplace. Dell is famous for giving its customers what they want. You know of the great cooperation that is taking place between Intel and Dell in the Server Market. Alliances may be the key to additional growth going forward.
There is much that can be discussed on AMD recent breakthrough in developing such alliances (GTW) while I am not making light of AMD as a threat to Intel, at this point in time, it continues to look like Intel has the upper hand going forward.
Back to Dell. So we see going back to when all looked rather bleak for the PC Industry (when Intel and AMD experiencing problems but Dell at that time was holding up strongly and published no ill effects from the problems that both Intel and AMD were experiencing) to the present with Intel doing just dandy, thank you, and AMD ? They are still trying to get it together!
Dell as you know, experienced a fine last quarter but did not beat the so called" whisper number". Much has been posted on whether Dell could have, should have, beaten the " whisper number". Much written some conjecture, some quite good, on that subject. Nevertheless, while we did not have complete agreement, we generally agreed that Dell needs to come out in even a more positive fashion.
Certainly, had not Intel done well this quarter, the strain on Dell to perform once again as we did in early on, would be greater. It would seem natural and reasonable for one to assume that Intel's good performance would be a positive in predicting Dell's performance.
Having laid this out, I do have reservations about us getting too enthusiastic Intel's "blow out" performance and placing too much of a positive on Dell's earnings estimates.
We do have to consider Dell,long with a history of doing well,has for the most part beaten the analysts estimates quite handily.
Analysts are or should be aware of this. It is a no "brainer."
Here is how I see how some analysts thinking could hurt us " Gee every time I put a number out there, Dell comes out and smashes it. This time I think I'll put a little extra into the plus side".
If we get enough analysts doing that and enough people adding on to that consensus estimate,( for reasons like that and other reasons less logical) we will again have to deal with a "whisper number" that becomes more than it should be, and more harmful to the immediate benefit of the shareholders.
Therefore in that sense, Intel's blowout earnings report may be less of help than one would hope.
If this "whisper number thing" continues, those of us that handicap our stocks around immediate upcoming earnings reports will need to shift our emphasis. Those of us that use earnings as a past indicator for future prospects will not be "inconvenienced" as such.
Thank God, thus far I do not have to deal with "past whisper number estimates". Michael Dell has to deal with that. He has to have been thinking "How do we deliver some sanity and realistic expectations to the financial body?"
No doubt managing analysts expectations is becoming more complicated as a result of the emphasis on "Whisper Number" placed on "Dell" . Certainly no company that I know of, has consistently beaten the earnings estimate number as handily and for such a long period of time.
If Intel's earnings estimate is fully factored in by the analysts and not made more by those who disbelieve those estimates, then it helps Dell in the near term ( bounce up into and on earnings).
If Intel's earnings estimate is made more (on top of what the analyst factor in) by the "whisper number" then it could hurt in the near term.
In a more purer sense, Intel's good news can only help those who have bet on their ability to deliver.
Michael bets well, Dell as a company will continue to collect on that.
Regards,
QT
Just an additional thought.
In my mind while we are all shareholders at one time or another, I would think that Michael's main concern is for the core of Dell's shareholders the " longs" if you will, so some of the concerns some of us have while valid, need necessarily be put into its proper context. But that is another topic.
Thanks for the prodding :)
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