Drip
Portfolio Report
Monday, March 2, 1998
by Jeff Fischer
([email protected])
ALEXANDRIA, VA (Mar. 2, 1998) -- As March began we added $100 to the portfolio, bringing our total base to $1,300 to date (having begun with $500 last July). Unlike the Beardstown Ladies, we don't include our paid-in money as part of the return (wow, that'd be a big mistake). Instead we use a value per share accounting method much like a mutual fund. It makes everything fair for our comparison against the market.
We bought $50 more of Intel (Nasdaq: INTC) today and now it's time for our second and final (for this quarter) column of letters from readers about Intel. Many of the letters are again from Fools working in the computer industry. Please remember that the opinions in any following letter belong only to the author. Enjoy...
1. I am in advertising, have worked on several large accounts (IBM, Microsoft and Compaq among the techs) and recently received an assignment to work on Intel for the first time. I am also a shareholder.
For what it's worth, Intel is taking their low-end chip "challenges" very seriously. While the nature of the assignment I'm working on is a mass consumer brand campaign, it's been made quite clear that one of the motivating factors is their concern over losing market share at the low-end. They want to make sure that everyone -- no matter where they are on the technological curve--looks for "Intel inside." After creating one of the most powerful brand names on earth, it's reassuring to see how determined [Intel is] to protect it. Once again, a little healthy paranoia at work.
2. Last season I began counting the most frequent advertisements during a Monday night football game (a good hobby if your team is getting killed). Miller Lite was the most frequently advertised product. Guess what was number 2?
Intel's familiar tone and "Intel Inside" campaign just kept appearing on my screen. They are usually "piggy-backed" onto other companies' advertisements, such as Dell and Nasdaq. When Joe Six-Pack goes into ComputerLand to buy a computer, he may not have much information to differentiate product lines. But he will recognize the "Intel Inside" logo stuck to some computers. Only marketing genius can make a complex, esoteric computer component which most consumers will never see into a familiar name brand. -Kevin Dewalt, Network Engineer, DMW Worldwide
3. Quite early in my investing career I read some remarks by Warren Buffett. I think he was referring to the Washington Post but [the comments] might just as well apply to Intel, Microsoft, Boeing and a few other great companies. What he said in essence was any time that you can legally invest in a monopoly, do it!
One reason the Wise consistently under-estimate the technology sector is that they seem to be lagging in the Internet revolution that is changing the very way we do business. They view the technology stocks from their historical boom and bust faddish perspective. But Intel chips are powering a revolution and it can only grow as the rest of the world catches up to America. -Dale Cook, Bentley College
4. For the last six years, I have been in the rather fortunate situation of having Intel as a customer. Working closely with back-end production needs, specifically the stages of burn-in, test and mark, I can tell you that no other semiconductor company is quicker to change when the opportunity or inevitable arises.
The current packaging technologies have forced the application of C2 or flip-chip assembly that will afford at least one generation beyond Merced to utilize the copper based format. Prior to this decision, Intel exhaustably researched tape-carrier-package (TCP) and other packaging technologies. Once the decision to fully develop C2 ball-grid-array (BGA) packaging was made, the following Monday orders were cancelled half complete, focus teams were re-deployed and I was left with estimating scrap charges. They did not waste time nor did valuable resources remain idle.
Watching my Intel customers, who now are my 30-something friends, become wealthy with no other strategy other than to hold their company sponsored options, I have grown quite secure in the belief that this company will continue to make millionaires out of its more disciplined, frugal employees.
5. Things may not be as rosy at Intel as they might seem. The stab at network products may be simply a case of trying to find new markets for their production capacity. Low-end products, such as for toys, is not what they want to do as the margins are simply too low. The market for PCs is beginning to show signs of saturation and a slow down --- they know that, but the rest of don't yet. Intel is beginning to move to more a international focus. They are doing this in an attempt to keep the PC market at the same level or growing. You will have to form your own opinion as to whether or not they will be successful. I consider <Intel Inside> a warning sign.
6. Hi, thought I'd chip in a few cents about Intel. I don't work for Intel but I am a Director of a small software company and we deal with Intel, Microsoft, Apple, and Oracle on a daily basis.
Intel is a great company. If you roughly break the PC market down into hardware, client software, and server software, you get the Big Three -- Intel, Microsoft, and Oracle. Each company totally dominates its market niche and all have been incredibly successful.
But looking forward one has to ask if this will continue into the future. Leave Oracle aside for now, let's consider Microsoft and Intel. Both have 90% or more of their market's share and are plugged into huge OEM agreements. When 95% of the people in the world think "PC," what they are really thinking is a computer with an Intel processor running Windows. However I would never invest a dime in Microsoft.
Why? One big difference between the two -- Intel has great products. Microsoft's software, if you'll excuse me, sucks eggs. Intel has doubled the performance of their chips every 18 months for as long as anyone can remember, and they are solid products of very high quality. They constantly amaze consumers, engineers, businesspeople, and the stock market with their innovative ways of hugely boosting the performance of their products with each release cycle which allows them to drastically drop the price of previous products, crushing the competition. This in combination with great manufacturing facilities and great executive management makes them a great company.
Microsoft on the other hand is known for shipping buggy, unstable, and inconsistent software. Computer users, even Microsoft advocates (of whom I have not met many), laugh about how often Windows crashes and the bizarre error messages it produces. Software engineers like myself consider Microsoft software to be amateurish, written by college kids with delusions of grandeur rather than mature adults who take pride in their work. Everyone from Microsoft's competitors to the DOJ are getting in line to sue Microsoft, and the Web is chock full of anti-Microsoft pages (do a quick query for "hate Microsoft" -- then do another query for "hate Intel"). Nearly everyone that I talk to in the industry anxiously looks forward to the day when the Microsoft juggernaut will crack and fall and we can start using real software. Will Andy Grove get a pie in the face at a public conference? I think not.
People use Microsoft because they don't really have a choice, and they hate it. People use Intel because they don't really have a choice, but they don't mind, because the products are great, have been great, and are going to be great. I happily sent Intel $350+ for my Pentium II chip. I do not look forward to sending Microsoft $80 for a copy of their software -- they should give it to me for free, and apologize for the quality.
Monopolies are great business. There are definitely some ethical questions involved, and our great country was founded upon the free market and capitalism and all that. But from a business standpoint there is not much bad you can say about 90% market share. Microsoft has this but they are in jeopardy because they got there with shrewd business tactics and a lousy product. Intel has this and it is justified and it is very likely to continue into the future. If they get into networking hardware and double the speed of our networks every 18 months for the next 10 years, nobody will complain about that either.
Anyway, enough ranting. This turned into $2.00 instead of $0.02. -Randy Tidd, [email protected].
7. Here is the view of a techie outsider.
For years (10+) we (theoreticians, techies and computer scientists generally) have been speculating about the end of the X86 technology (i.e. 286, 386, 486, 586/pentium).
It is a CISC (Complex Instruction Set Computer). The problem with CISC is that the faster you try to make it, the more complex it gets, the more complex it gets, the more transistors are on the chip, and he more transistors the more heat. They (Intel) have been ducking and dodging this problem for the last 10 years but now there are very few dodges left. If you buy a Pentium II what you get is a massive heat sink with a chip attached. It is giving off about 50 watts! This is why you don't get laptops with the latest Pentium chip. The heat sink won't fit in the laptop box!
The theoretically better RISC (Reduced instruction Set Computer) architecture does not have these problems and has been much predicted as replacing the CISC technology. And in fact Digital (Alpha), Sun (SPARC), IBM, Motorola & Apple (PowerPC) have all confronted this problem and moved to a RISC architecture. In the late 80's early 90's they each took on the consequent "software compatibility" problem for better performance in the mid to long term with varying impacts on market share etc.
Nevertheless they are all through the CISC/RISC transition. The Wintel companies Intel and MSFT still have this hurdle to overcome. [Intel purchased the Alpha technology outright from DEC recently.]
Fool on!
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