RULE MAKER PORTFOLIO

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Intel on Stage

by Matt Richey (TMF Verve)

ALEXANDRIA, VA (April 22, 1999) -- This afternoon, Intel (Nasdaq: INTC) unveiled its strategy to the world at its Spring Analyst Meeting in New York. I had the pleasure of watching the meeting live via broadcast.com, thanks to Intel's admirable policy of egalitarian corporate disclosure. The four-hour meeting was a rapid-fire series of presentations by Intel's top-brass. In the next few paragraphs, I'll try to whittle down my notes to the most defining elements of the company's strategy going forward.

Intel CEO Craig Barrett kicked off the meeting with Intel's simple vision:

One billion connected computers, millions of servers... and trillions of dollars of e-commerce.

Already, the Santa Clara manufacturer of microprocessors expects half of 1999 revenue to be associated with Web-based commerce, currently zipping along at the pace of $1 billion per month. By 2002, e-commerce is expected to reach $1 trillion in the U.S. alone -- and that's after prognosticators only a year ago expected the figure to be as low as $400 billion. Within two-to-three years, Intel anticipates deriving fully 90% of its revenue from e-commerce. Throughout the meeting, execs focused on Intel's core mission of being "the building block supplier to the Internet economy." Within that mission, the company's strategy is built upon the following four Internet building blocks: client platform, server platform, network infrastructure, and services.

Under the "client platform" umbrella, Intel intends to enable the most compelling devices (PC, hand-held, set-top, or otherwise) for accessing the Internet based on performance, capabilities, and value. As for the PC market, the company remains positive based upon the healthy channel inventory levels and strong demand for the latest technology due to e-commerce and the Internet. Also, Intel considers Western Europe to be the "biggest Internet opportunity," equivalent to the U.S. market in 1997. The company is also benefiting from efficiency gains by moving design and manufacturing to southeast Asia.

Later this year, Intel will offer its new "Geyserville" technology, which allows full 600 MHz Pentium III desktop performance in a notebook when plugged into an AC outlet, but scaled back performance and longer battery life when on the road. This new technology is expected to be instrumental in driving a rapid transition to mobile notebooks. By the first half of 2000, the company expects to offer a 700+ MHz Pentium III for the mainstream PC market, a 500+ MHz Celeron for the value PC market, and a 700+ MHz mobile Pentium III for notebook PCs.

Intel's "server platform," including high-performance servers and workstations, is growing strongly thanks to the growth of the Internet as well as the corresponding need for storage. In the last 18 months, terabyte-size databases have grown by a factor of three. This "data explosion" has been fueled by the ability to collect real-time data from around the world. Within the next few years, DSS (decision support software) databases are expected to grow by a factor of 24. The boom in data mining and data visualization is expected to create 31% compound annual growth for the Intel architecture (IA) based server/workstation market for the next several years. Already, Intel has a competitive advantage in the Internet server market based on performance and software-compatibility advantages. And, the company expects to further distance itself from its competitors with the release of 700 MHz-class Xeon processor by the first half of next year.

In the network infrastructure arena, Intel aims to participate in the booming telecom market by providing the "silicon building blocks." The company wants to utilize its core competencies of silicon design, manufacturing, and platform knowledge in the production of a "network processor" for switches, routers, and other networking gear. The programmability of these processors would provide vendors the flexibility to add features to the processor after their products are in the development cycle. The existing fixed function ASIC technology lacks such flexibility. (For more on Intel's move into the networking arena, check out this article in the latest Forbes.)

Finally, Intel also is beginning to provide Internet-based services. The goal of the Internet Data Services (IDS) division is to become the leader in hosting, storage, and delivery of Web content by providing key building blocks for Web delivery of products and services. On April 12, IDS signed a deal with Excite (Nasdaq: XCIT) to develop a simplified buying and selling experience on the Internet. In today's meeting, Intel explained its plan to build "bit factories" for Web businesses. The company argued that building data centers of this sort would utilize Intel's capabilities of building microprocessor fabrication plants.

Chairman Andy Grove boldly concluded the meeting with this statement:

Network bits will be shaped and shipped primarily by Intel silicon and services.

We'll certainly be watching closely as Intel enters a risky, but potentially lucrative, transformation into an Internet-based company.

04/22/99 Close
Stock Change    Bid
AXP   +2 9/16   137.19
CHV   +2 1/8     98.50
CSCO  +5 1/4    113.19
EK    -1 1/16    73.25
GM    -  3/8     88.69
GPS   +1         70.50
INTC  +3 1/16    61.50
KO    -1 1/16    66.50
MSFT  +2 15/16   84.94
PFE   +4 15/16  128.31
SGP   +1 1/4     53.88
TROW  -2 13/32   37.16
XON   +  1/2     78.94
YHOO  +9 1/8    184.00


                  Day     Month  Year    History
        R-MAKER  +2.08%   3.48%  15.26%  45.85%
        S&P:     +1.70%   5.63%  10.86%  37.12%
        NASDAQ:  +2.95%   4.06%  16.82%  54.98%

Rule Maker Stocks

    Rec'd    #  Security     In At       Now    Change
    2/3/98   48 Microsoft     39.13     84.94   117.04%
    5/1/98   55 Gap Inc.      34.37     70.50   105.12%
   6/23/98   34 Cisco Syst    58.41    113.19    93.78%
    2/3/98   22 Pfizer        82.30    128.31    55.91%
   2/17/99   16 Yahoo Inc.   126.31    184.00    45.67%
   2/13/98   44 Intel         42.34     61.50    45.26%
   5/26/98   18 AmExpress    104.07    137.19    31.83%
   8/21/98   44 Schering-P    47.99     53.88    12.26%
    2/6/98   56 T. Rowe Pr    33.67     37.16    10.34%
   2/27/98   27 Coca-Cola     69.11     66.50    -3.77%

Foolish Four Stocks

    Rec'd    #  Security     In At     Value    Change
   3/12/98   20 Exxon         64.34     78.94    22.70%
   3/12/98   17 General Mo    72.41     88.69    22.49%
   3/12/98   15 Chevron       83.34     98.50    18.19%
   3/12/98   20 Eastman Ko    63.15     73.25    16.00%

Rule Maker Stocks

    Rec'd    #  Security     In At     Value    Change
    2/3/98   48 Microsoft   1878.45   4077.00  $2198.55
    5/1/98   55 Gap Inc.    1890.33   3877.50  $1987.17
   6/23/98   34 Cisco Syst  1985.95   3848.38  $1862.43
    2/3/98   22 Pfizer      1810.58   2822.88  $1012.30
   2/17/99   16 Yahoo Inc.  2020.95   2944.00   $923.05
   2/13/98   44 Intel       1862.83   2706.00   $843.17
   5/26/98   18 AmExpress   1873.20   2469.38   $596.18
   8/21/98   44 Schering-P   2111.7   2370.50   $258.80
    2/6/98   56 T. Rowe Pr  1885.70   2080.75   $195.05
   2/27/98   27 Coca-Cola   1865.89   1795.50   -$70.39

Foolish Four Stocks

    Rec'd    #  Security     In At     Value    Change
   3/12/98   20 Exxon       1286.70   1578.75   $292.05
   3/12/98   17 General Mo  1230.89   1507.69   $276.80
   3/12/98   15 Chevron     1250.14   1477.50   $227.36
   3/12/98   20 Eastman Ko  1262.95   1465.00   $202.05

                              CASH     $70.09
                             TOTAL  $35090.90

Note: The Rule Maker Portfolio began with $20,000 on February 2, 1998, and it adds $2,000 in cash (which is soon invested in stocks) every six months.

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