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

To: Paul Engel who wrote (79858)	4/23/1999 2:44:00 PM
From: Robert Douglas	Read Replies (1) \| Respond to of 186894

Paul, Joe Osha's comments on INTC. For private use only: <<Upside in server and workstation microprocessors is still the key: We came away more convinced than ever that Intel can become the dominant supplier of microprocessors used in servers and workstations. It's all too often overlooked that the explosion in internet usage and electronic commerce is driving a parallel explosion in demand for servers and workstations, the workhorses of the internet. We've said before, and will say again today, that there is a $5.5 billion to $6 billion market opportunity for Intel during the next 3 years as an MPU supplier to server and workstation makers. Our outlook for Intel's high-end microprocessor business is the single biggest reason for our intermediate -term accumulate and long term buy ratings, which we're reiterating today. The internet strategy - four building blocks: The internet, electronic commerce and what they mean for Intel pervaded practically every aspect of the company 's presentation. In case anyone failed to get the point, CEO Craig Barrett's third presentation slide read "Intel Strategy - Be the building block supplier to the internet economy". Barrett identified four building blocks - client platforms, network infrastructure, server platforms and services - that provide a good framework for looking at Intel's overall strategy. Client platform is a fancy term for personal computers. Intel continues to grapple with the challenge of maintaining two distinct bands in its desktop PC microprocessor business, which Paul Otellini referred to as the "mainstream PC" band and the "value PC" band. Those two bands were one band before the explosion in demand for inexpensive PCs, but Intel's introduction of the Celeron brand to address the lower end of the market created the challenge of keeping the higher-priced (and higher profit) desktop microprocessor market from being cannibalized by Celeron. Intel has responded by pricing PIII very aggressively, early in the product's life cycle, in order to limit migration to Celeron, especially in the business PC segment. The extra SIMI) instructions available on the PIII are another differentiator. Paul Otellini, asked yesterday why Intel wasn't planning on offering SIMI) on Celeron this year, said that he wanted to sell as many PIIIs as possible. For a segmentation strategy, that makes sense! We are modeling in very aggressive PIII price declines this year, and as long as Intel is willing to live with that we think the segmentation strategy will be reasonably effective. The really impressive part of the day came when Intel discussed its server processor roadmap as part of its "server platform!' strategy. Growth in multiprocessor servers is accelerating - even a product with four or eight PIII Xeon processors is likely to offer better value than a similarly capable product built around a proprietary architecture. Benchmarking data included in one presentation showed IA solutions ahead of proprietary architectures in most categories. Intel's advantage only seems likely to expand once the first IA-64 product goes into production next year. The only component of Intel's strategy that we're less sure of is the company's push into the home, small and medium-sized enterprise market for networking equipment. Intel has managed to be quite successful so far in the NIC and lower-end LAN switch market, but we're not sure exactly how Intel intends to differentiate itself in those markets, which are characterized by brutal pricing and increasingly aggressive Taiwanese competition. Intel certainly has brand strength, but whether or not semiconductor manufacturing and design skills will translate into the low-cost manufacturing strength and merchandising expertise needed to compete in selling hardware to homes and small businesses remains to be seen. Services and software solutions, the last of Intel's four building blocks, is an interesting area strategically but we think it has little likelihood of impacting Intel's overall results significantly. Manufacturing really does differentiate Intel: Intel is, as always, continuously refining its awesome manufacturing base, and is preparing to focus on the upcoming transition to 0.18. We think that investors may have been taking Intel's manufacturing strength for granted until recently, but execution problems from National Semiconductor and AMD have highlighted just how difficult it is to maintain a continuous stream of new product introductions on advanced processes. Craig Barrett did reiterate yesterday his aversion to having Intel lead the transition to 300mm wafer manufacturing, referring to the role of leading a technology transition in semiconductor manufacturing as "community service". Nothing new, really, but a clear confirmation of our investment thesis: There was nothing really new at this year's analyst meeting, but we are enormously encouraged by the fact that Intel's management has clearly thought through how Intel will manage the transition away from a business led by desktop PC microprocessor growth. Intel detractors often point out that the company is facing rapidly declining ASPs across all of its mobile and desktop MPU businesses. We agree that the desktop PC market has become a tougher market in which to prosper, but we believe that Intel has managed to create a strategy that will move it to the next stage of growth. A few months ago we compared Intel to Sony and IBM, companies that have managed to expand beyond their initial core markets (consumer electronics and mainframes respectively) and achieve continued success and growth. Following yesterday's presentation, we are more convinced than ever that the comparison is an apt one.>>