here's INTC latest Chip ....come to the rescue...as profiled in
Barron's tonight...
March 15, 1999
New Chips Bring Hope to Some Tech Stocks
By Carolyn Whelan
Technology stocks have been laggards of late, as major technology
companies like Dell Computer, Advanced Micro Devices and 3Com
announced disappointing sales or earnings as the first quarter approaches its
end.
In addition to that and a seasonally weak period, investors have shied away
from tech stocks because of some key product transitions that may be pushing
sales into the future.
In the weeks and months before a product debuts, buyers
may hold off on purchases of it and related products. But
the release of a new product can unleash pent-up demand,
and boost the company's stock.
"Every time you change a product it's a new round in the boxing game," says
Henry Voskoboynik, a vice president at Forum Capital Markets. "The
company with the best technology has the best chance of winning the next
round."
That's why some investors are ignoring short-term trends and trying to identify
winning technologies. Roger Kay, an analyst at the International Data
Corporation, sees Intel's new core logic chipset-- commonly known as the
820, or its code name, Camino--as the "next big thing" in technology.
Its release could help ignite dynamic random access memory (DRAM) chip
maker Rambus, kickstart the struggling disk-drive business and boost the
fortunes of graphics chip makers. And though it hasn't been officially
announced, Camino is slated to debut this fall.
The new core logic chipset may, in fact, have a bigger immediate impact than
the newly released Pentium III or even Windows 2000 (Microsoft's
long-delayed new operating system for servers and workstations), which is
expected later this year. Kay believes adoption of both those new products
will be slower than usual.
Camino, on the other hand, directly affects graphic speeds, spurring the
development of new graphics chips and software games.
Loosely speaking, core logic chipsets acts as a traffic cop between the
microprocessor and other systems in a computer. It directs the data flow
between the processor, the memory subsystem, the PCI Bus (which gives
access to the hard disk drive) and the graphics subsystem.
"It's a pretty substantial upgrade in architecture," says Kay. The Camino will
allow graphics to run twice as fast as they do on today's computers.
Intel hasn't actually said that it's releasing a new core logic chipset. But three
people familiar with the product tell Barron's Online that Intel is working
feverishly on it. Among Camino's probable beneficiaries are Rambus, a $1.6
billion DRAM maker that works closely with Intel and , of course, the
high-end graphics chip makers.
Rambus's DRAM is critical to making Camino work at optimal levels, and
Intel has endorsed the Rambus architecture. That's a key reason the stock is
getting important support on Wall Street.
"It looks good to me like a pretty good investment," says Drew Peck, a
technology analyst at SG Cowen, who has a Buy rating on Rambus stock. "As
long as Intel stays the course, we're barreling ahead towards Rambus as a
standard."
Over the last two months, three firms -- BancAmerica Robertson Stephens,
Morgan Stanley and Hambrecht and Quist -- have upgraded their ratings on
Rambus to Buy. At Monday's closing price of 71 7/8, it's about a third off its
52-week high of 109 1/2 that it set in September.
Peck's earnings estimate for Rambus is 32 cents a share in the fiscal year
ending September 1999, rising to $1.12 a share next year, and then more than
tripling in fiscal 2001, to $4.00 a share. Based on his figures, its P/E of 62x for
2000 and 17x projected earnings for fiscal 2001 are significantly less than its
rapid short-term growth rates and its projected long-term annual earnings
growth of 75%.
Makers of graphics chips also are eagerly awaiting Camino. Already,
companies like S3 and ATI have said they'll build their own chipsets to handle
the faster and cheaper new 2D and 3D programs Camino would allow. The
PC graphics chips market is expected to more than double over the next three
years, to $ 4.3 billion in 2002 from $2 billion today, according to San
Jose-based Dataquest, a unit of Gartner Group.
"ATI has a pretty good market share and pretty impressive product offerings,"
says Voskoboynik of Forum Capital. "They would probably be among the
better positioned to win the next round."
He's also bullish on S3,which he says is undergoing a turnaround. After
disappointing sales of its Savage3 chip, he said, the company, which has a
market capitalization of $410 million, installed new management and has been
fairly successful with a new product, its recently released Savage4 (S4).
For revenues and earnings, the Savage4 chip is significant. It "puts them back
on recovery," says Dan Scovel, a semiconductor analyst at Fahnestock &
Company, who has a Buy rating on the stock. His 12-month price target of 15
is almost double today's 8. According to First Call, analysts expect the
company to lose 51 cents a share in 1999 and then earn 88 cents next year,
resulting in a very low P/E of nine times earnings for 2000, which is
significantly less than S3's projected long-term growth rate of 22%.
Of course, there could be some glitches. Camino's release could be further
delayed. And though Rambus is clearly the market leader, some PC
companies consider its DRAMs pricey. And some experts, like Voskoboynik,
are cautious on the whole graphics chip industry because of fierce competition,
price wars and weak demand from Asia.
Still, says Scovel, "most people assume that Rambus will be the dominant
architecture."
And there aren't too many other technology companies that could boast of
that.
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