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

To: John F. Dowd who wrote (78990)	4/14/1999 8:53:00 AM
From: Robert Douglas	Read Replies (1) \| Respond to of 186894

From Bear Stearns this morning: <<Intel could be weak near-term because Intel's guidance of a sequential decline in revenues is not reflected in Street estimates. But this is mitigated by better gross margin trends as well as an outlook for sequential growth in 2H. Importantly, Intel did not support Compaq's contention of slower demand, stating that it was seeing normal seasonality. We maintain our Buy. If Intel were to sell at a 50% premium to its growth rate of around 20% (which is reasonable for a franchise company such as Intel), we could see a price of $75- $80. 12/1999E $2.25 12/2000E $2.55 >> -Robert

To: John F. Dowd who wrote (78990)	4/14/1999 9:39:00 AM
From: Arik T.G.	Respond to of 186894

John, Thanks for your response. You have valid points. I agree with the following: - Intel is one of the greatest industrial companies ever. - Intel is making inroads into other high value added chip areas in communications. But - Intel's core business is CPUs. - PPU is the main factor in gross %age. >>Why is the product mix going to be skewed lower. - In 1999, 90% of all PCs will be under $900. - Most of the PC components have rigid price : Box + Power; HDD; CDD; Screen. In fact, the flexible components are only CPU, RAM, and display card. Therefore over 60% of the delta price between a $900 and a $1200 computer can be attributed to the CPU. (when you get to heavier machines, the CPU is responsible for 40-45% of the delta p). - In a <$900 machine you must use a cheap (Celeron / k6) chip. - A $400 (retail) chip makes Intel 6 times bottom line $$ then a $170(retail) chip. - Although Intel is very efficient, and is lowering costs, gross margins have to decrease when PPU drops. >>Xeon will cause the high end to do quite well. - Xeon is the reason why the company expects Q2 to keep the (very good) margins of Q1. But margins will deteriorate into the second half. The company said so. >>You are neglecting the fact that for every client sold their is pressure on the server side to upgrade. The rapidly expanding Linux servers have less demands from the CPU. I expect the PPU for servers to decline, too. More $400 CPUs and less $800 CPUs. ATG