Gary:
Now that's more like it. This is more or less the kind of thing I might have expected from Paul, so he should thank you for a robust defense. (g)
Not that I need or want to have the last word, as a couple of your comments are quite valid, but a few quips probably won't offend. Also, it is the fact that each of us has to interpret the info out there that makes markets.
Basic Earlie point:
- INTC makes most of its dough selling micros to a small group of PC producers. The rate of growth in PC sales is "slipping" (understatement), and a spreading deflation will likely further reduce that growth. Plenty of evidence that business sales (larger fraction) already in serious decline. Last year, no consequential competition, (monopoly) now lots, including one that has gouged INTC where most of the end product sales growth is taking place. All of above intensifies price war environment. At $135, even extrapolating a better end product growth rate than the current stats suggest, the PE sits well above 30. This is rather enthusiastic, given the environment.
Your Points:
Well argued re. the 35% rise from previous high, especially the low interest rate and technical consideration. Also can't argue with your "most semi industry watchers are predicting..." point (nice personal stick handling on that one and I am not saying that cynically), but then again, their track record of the last two years has been a bit weak to say the least. (the semi "bottom" call is now over two years old, and still not showing up as forecast). It also takes a big leap of faith in the face of the basic point outlined above.
" Exciting new products"? Hmmm. I can't buy that one. A bit more speed doesn't cut it. Also, with no new software drivers, why buy these "exciting new products"? What do they do for me? Business especially will need more than additional processing speed. For most applications, the increases aren't discernible.
A very good quarter? Slightly better results than the peak of two years past may not necessarily be viewed as a good quarter. Only on a sequential comparison basis can that argument be made, but again good personal stick handling, especially compared with Paul's (g)
Loved your response to my "no barnburner quarter" comments and I'll concede your point. Well put.
The cash point is still mine. The company spends most of the cash on stock buy-backs. Cash would not be down if they stopped this dumb process. Incidentally, look up Intel's last issue prices and decide if buying stock back at these prices makes sense. Has to buy expensive new equipment? The company is actually cutting cap expenditures by 25% in 1999 (which makes sense in an excess capacity environment). Now where does that cash growth you expect come from in 1999? You didn't support this one.
I wouldn't toss out my Justice point in quite so cavalier a fashion, particularly given MSFT's current squirmings (Microsoft is in trouble. I would wager that they will try to settle soon, and it will be expensive and embarrassing). Levitt's (SEC) attitudes towards improper accounting and reporting adds to the worry environment. Fighting the government isn't cheap.
The Merced "delays" don't count? Weak comment. It happened at exactly the wrong time and together with the Celeron intro disaster practically handed AMD a market entry as wide as a throughway. Intel's clients actually grinned at this as they were initially nervous about being seen to be less than total loyalists. Now matter how one cuts it, it was a disaster. What suggests that there will be no further gaffs of this type?
If the new Celeron chip is so competitive, why is it that AMD sold everything it could produce and Intel didn't (see INTC telephone conference notes) Not taking anything away from the new Celeron, as it is (finally) process competitive. But AMD's products are as good and cheaper (at least for now) and they too have new products coming to market. One thing I can tell you is that the K6 is beloved in the field and has gutted the "Intel Inside" marketing program. There have been very few marketing penetrations like it in any big cap field since the Chrysler rejuvenation. While Intel may be "determined to take back low end market share", there is a big difference between saying it and doing it. What the heck else can they say given the circumstances? And the box producers love the competition anyway, as they play one against the other, so they'll bend a bit to keep AMD alive if not prosperous.
The PC market isn't flattening out? The strong performance of CPQ, Dell, And IBM shows this? Better check the several players that have vacated the arena, the crummy IBM PC numbers from their last quarter's reports, HWP's comments on the PC market, and the many downward revisions over the last two years, even from the Dataquest's of this world. My choice of words ("flattening out") was intentionally gentle. Weak response on this one.
"Price wars are already here". Boy, do we agree. Pay 30 plus PE? The point is that all suffer in them. Incidentally, as nice a guy as I am, I'm not going to let you off the hook for that "Intel has far superior manufacturing processes" bit (are you sure they don't use the same processes?) without your providing at least a bit of backup. (g) I've heard that about MU for years, and it isn't accurate.
Business sales not falling off because IBM, Dell, etc are not saying so? Try any of the big resellers who actually flog the products to business, who are screaming it. Can't argue your Dell point yet (touche), but I will bet you that we see evidence of it this coming quarter (but note that this is a very weak counter argument as far as facts are concerned, so I won't push it. (g)).
Dell is a direct seller using BTO, so using them to counter my "overhang" comments was an error in judgement. IBm hadn't solved the problem as of their last report, which emphasized a lousy PC environment. CPQ never had an inventory problem,....ever. (g) Your comment,..."Should we not believe them?" My answer, "No,at least not based on recent behaviour." (g)
I'm glad you brought up Kurlak.. Poor Tom, who last year I criticized for bullishness, (based on my belief that he actually knew what was going on in the semi arena and was just extracting his clients), has been bearish until a week or two ago, when his firm's sales force rebelled in the face of a rising INTC price and management put his feet to the coals. To give TK a bit of credit, he "damned with faint praise" (neutral to accumulate), which is truly brave. He knows what's coming and doesn't want to be trampled.
To be conciliatory to a darned good contributor, while you didn't mention it, AMD is not making profits in this situation and Intel has deep pockets, so on a long term basis, INTC could outlast AMD (if INTC doesn't cut its own throat by throwing the cash hoard to the winds). But this is not the kind of environment where an investor is wise to pay a 30 (or much higher?) PE.
My comments on Rambus are not strongly held and are in fact rather weak, but Intel has a lot riding on Rambus. ( It's the reason for the $500.0 million "investment" into MU). Not everyone in the industry shares Intel's enthusiasm (I wonder why.) and the time tables are backing up.
Anyway, solid job Gary. Much better than Paul's "Are you a clown" response and deserving of much more respect. I enjoy this, as it makes us all think and explore the available information. A tip of the old Earlie Hockey helmut for the response.
Hope the thread doesn't mind the extended commentary on an already well-aired topic, (enough from me at least) but Gary deserved a response to his effort.
Best, Earlie |
