Drip
Portfolio Report
Thursday, February 26, 1998
by Jeff Fischer
([email protected])
ALEXANDRIA, VA (Feb. 26, 1998) -- Today the column will share thoughts about Intel Corp. (Nasdaq: INTC) from readers around the country, many of them working in the computer industry. Without further ado...
1. I live in Folsom, CA, where Intel has one of their largest campuses. They are adding capacity at an extremely rapid rate. If the figures reported in the Sacramento Bee are correct they already have 4000 employees here and are adding 2000 more as soon as they can finish building their facilities. The employees here are not production workers but are all in research and design.
The area around Sacramento has become Silicon Valley in the Valley or Silicon Valley East. The development around here is like that which occurred around San Jose 25 years ago. From a once sleepy backwater immortalized by Johnny Cash singing "Folsom Prison Blues" during an appearance at the prison, the area is becoming one of the most rapidly growing high-tech research areas in the world. Don't think they would be doing the multimillion-dollar building program unless they were planning to be around for a while. At one time there were three industries in Folsom. Folsom Prison, Natomas Gold Dredging and Emma's Place (a bordello that was operating until 1955). How times have changed! -- Ray Steele.
2. Working at [a computer manufacturer], I see the Intel stranglehold first-hand everyday. I cannot imagine our group trying to maintain two relationships at once -- it would add a huge amount of complexity and would increase headcount.
With our board and processor supply filled 100% by Intel, (in our group) we are totally locked into their product line. Our product schedule is tied to their new development cycles. It is a win-win situation for both companies. We are leading edge and they get us there. You are right [I believe], only a new technology by an IBM or others will truly test them.
3. Just wanted to clarify, the copper industry [in semiconductors] has a direct impact on me [working in the industry]. Most of the top companies will have to go to copper for their next generation chips because of technical limitations of current technology. IBM is the first to display their copper process, but Intel, National, AMD, Rockwell, Lucent all are working on copper processes.
4. Excellent analysis of production efficiency at Intel. May I suggest some additional information (try to stop me ;). I read... that Intel doesn't scrap older (larger geometry) fabs, they convert them to other products. When the 0.35 micron fabs get replaced by the 0.25 for the high-end stuff, the old micron fabs are used for the slower and smaller processor production -- production now being done on even larger geometries. The 960 RISC processor is one that does not require state of the art fabs.
5. When valuing Intel, what impact do you think multiple CPU systems will have on their bottom line? I'm a WinTel programmer and I can tell you, right now, most of the folks I program with are coveting multiple CPU machines, and we're just starting to buy them for reasonable prices. I think this is a trend that will continue to pick up steam over the next two years and by the year 2000 dual CPUs will be commonplace. After dual CPUs become common, I think the number of CPUs in a system will become a measure of the system capability much like Megahertz is used today. With the number of CPUs doubling approximately every 4 years.
Obviously most people won't be paying $400 per CPU when they have 64 CPUs, but I think the CPU will take more of the cost of the system over time, from components like Hard Drives, RAM, and especially Monitors. Today's dream machine might have a $400-800 CPU and an $1100 Monitor. The dream machine in 4-6 years might have $1200-$1600 worth of CPU and only $300 worth of Monitor.
I also think the multiple CPU machines, coupled with Windows NT, will make huge inroads in the next 5 years into enterprise computing. Already, the Japanese mainframe makers are moving in this direction to replace their business mainframes. These are the machines that will contain 32 and 64 $2000 Intel CPUs. Of course none of these happenstances are certain to occur, but I'm betting my money that they will.
6. One thing on the near horizon for Intel is the advent of Universal Serial Bus, which is a way of hooking external equipment to your PC in a much more friendly and powerful way than the current serial port or parallel port. If USB takes effect (and it's already started), printers, modems, keyboards, mice, monitors will all be connected through it. What does this have to do with Intel? Well, Intel is one of the first and few producers of a microcontroller (scaled down processor) that allows devices to attach to USB. So now picture an Intel controller in every peripheral you own (well maybe not every one, but a lot of them). Every keyboard, monitor, mouse, Zip drive, joystick, printer, scanner, etc will be adding to Intel's profits and we'll be happily watching the company and our finances grow! -- Dennis Merrill, BSEE, Electrical Engineer
7. I am a computer dealer, 12 years now, and also an Intel stock owner. Their position in the chip business is what drives the company. The network side of Intel is sub-par, although we sell a lot of their products. Quality and performance do not match 3Com's. We look at Intel's network stuff as low end of the name brands. Their software seems to be slow to improve or to fix bugs. I personally use a computer with an AMD processor (a test), all the computers in our company are Intel based. My computer functions fine at a significantly lower processor cost. I wonder how long "Intel Inside" will matter. As long as Andy [Grove, CEO] is running the show I have confidence in Intel's future.
8. I'll give you my reasons for why I think this is a great company in which to invest.
Most of my reasons are more of the "soft" kinds of things that an investor may like about a company. First, its an investor-friendly company with a great website and a great drip (dividend reinvestment plan). Second, it's a company that readily admits when it gets behind in technology, but then goes all out to catch up. Two stories in the Wall Street Journal recently make that point. In one, the Journal discussed how Intel missed the boat on lower-priced chips for toys and appliances, but most people readily concede if and when Intel wants to get into that business, they will (with a vengeance). The next story discussed Intel's foray into networking. Again, the company is finding new areas to deploy its resources.
The company is cash rich and a leader in its industry. I'm a computer and technology buff, and I can't think of a more solid company to invest in (other than Microsoft) that lets you stay on top of the industry. I say, buy it and keep buying. Margins may be squeezed in the long run, but they'll grow new business and use their 9 billion dollars to drive their competitors to their knees. In 20 years we'll look like geniuses for having shares in Intel.
9. Intel is in the catbird's seat. The low cost producer with a differentiated product in the most attractive industry for the next 20 years. Every component of the Intel value creation system outperforms -- lowest cost production, new product development (Merced), pricing that stuns the competition. Excellent management, superb track record, a PE until recently in the low 20s [or lower] -- a golden investment opportunity. The budding world of Internet commerce and retiring baby boomers will fuel a market that will surprise everyone on the upside.
Please note: These opinions are those of the individual writers and are not necessarily shared by anyone at the Fool. We have more thoughts to share, though -- more than just one column worth -- so we'll try to have another column of letters on Intel this coming Monday, too, if we have enough to share. I appreciate everyone providing their insight.
If you'd like to share thoughts on Intel, please send them in email. When you do, please let me know if you would like your name (and/or company name) included or not included in this column if your thoughts are posted here. Thanks again, and Fool on!
--Jeff Fischer
FoolWatch -- It's what's going on at the Fool today.
TODAY'S NUMBERS
|
