Drip Portfolio Report
Thursday, September 18, 1997
by Randy Befumo (TMF Templr@aol.com)

ALEXANDRIA, VA (Sept. 18, 1997) -- First, some housekeeping. On Saturday morning, Texas radio listeners will be treated to a rare event -- Jeff and I both on the radio. Daniel Frischberg, the host of a Saturday morning talk show called "The Breakfast Club" on KLUP-AM 930 in San Antonio has agreed to have us on the air. For anyone who wants to hear us during an extended question and answer session, tune your radio dial to that frequency. We're excited to go on the airwaves to spread the direct investing gospel and hopefully Texas Fools will enjoy the experience.

We've not been doing a very good job of following developments at INTEL CORP. (Nasdaq: INTC), our first investment, so today I wanted to share some thoughts with you about Intel. COMPAQ COMPUTER (NYSE: CPQ) and DELL COMPUTER (Nasdaq: DELL) have both been up strongly over the last few trading sessions after both companies gave positive "guidance" for future earnings. Compaq said that its 1997 revenues will be $50 billion instead of the $40 billion it was previously expecting. Dell said that it had too many opportunities and was focusing on the Asia-Pacific region instead of Latin America and on workstations instead of other possible products because these represent the best possible returns on equity.

Given that Compaq has close to $21 billion in trailing revenues right now, this means revenue for the company will grow at 28% per year instead of 20% -- a pretty big jump. Compaq said it is receiving strong orders in August as well. Although the company has done well selling sub-$1000 PCs using Cyrix's MediaGX chip, the vast majority of Compaq sales contain Intel microprocessors. With roughly $500 of Intel silicon in every PC right now, assuming Intel is in about 90% of Compaq's computers (with computers making up 70% of its business) and the average selling price is around $3,000, this means that Intel will get roughly $2.3 billion in revenues as a result of this change alone -- not too shabby.

Although many see Compaq as completely hostile towards Intel because of its willingness to use other chips, Compaq also announced that it was partnering with Intel to develop "next-generation networking technologies for the design of faster computer networks." Compaq, as many may recall, wants to be one of the top five vendors of networking gear by the year 2000. Intel is also a spoiler in this industry, having driven 3COM (Nasdaq: COMS) shareholders to the brink in March and April with some price cuts on network interface controllers (NICs). With these two very networking hungry companies working together, our thesis here at the Dripfolio is that those who see Intel as a microprocessor company only and not a silicon company are missing a lot of the story. The companies promised products (based on this partnership by the fourth quarter) include NICs, adapters, switches, HUBs, xDSL technology, and remote access servers -- basically something in every major networking product category.

Despite the fearmongering by Intel bears who talk about cheaper chips from Cyrix and AMD, Intel remains a simple choice for investors who want to participate in the Digital World because of the huge product portfolio focused on every aspect of the silicon age. While it may not grow quite as fast as other companies in the industry, it represents a nice investment in PCs, servers, workstations, networking equipment, software, and digital media. Very few companies have the cash to push into R&D and fabs to produce products at the same scale as Intel. While some point to many of Intel's fabs as being too outdated to produce high-end microprocessors, they seem to forget that the same fabs can still do quite well producing networking, graphics, and audio chipsets for their other products.

--Randy Befumo