<THE DRIP PORTFOLIO>
Intel's 30% Savings
Plus, Fools' thoughts on selling
by Jeff Fischer (TMFJeff)
ALEXANDRIA, VA (June 9, 1999) -- Few companies can lower the cost of producing a primary product by 30% in a single swoop, but Intel (Nasdaq: INTC) has been able to decrease its product cost nearly annually since 1985, and today it announced that its pending move to 300 millimeter semiconductor wafers should lower costs by 30% for each chip made. Intel will pass much of the savings onto consumers. Lately, it's good to be a consumer.
300mm wafers have more than double the surface amount of the currently-used 200mm wafer, and they improve productivity and allow the creation of more powerful chips at lower cost. Intel will start volume production with larger wafers (by the way, remember when Apple Jacks cereal was made larger?) using 0.13 micron technology (smaller micron technology also cuts costs) and copper, people, copper, in 2002. It should begin volume production with large wafers (but not copper) and 0.13 micron in 2001.
Intel and chip equipment stocks rose on the news. Intel rose because it will save costs over time (even after spending mountains on equipment upgrades), and chip equipment companies rose because chip makers will spend mountains on equipment upgrades. The move to 300mm has been anticipated, but not enough so to be fully accounted into stock prices. (This industry shift, in fact, could finally give more life to contract-winning chip equipment makers in the coming years after what seems to have been a relative four-year lull.)
Imagine if Coca-Cola (NYSE: KO) or Johnson & Johnson (NYSE: JNJ) suddenly announced future 30% savings on key products. How incredible is the ability to cut costs 30%? It is very incredible. With Intel, however, regular cost cutting has become such commonplace and is now so regularly assumed (it shouldn't be regarded as such, in my opinion), that it receives very little "awe power." Still, I'm comfortable being awed at Intel's unparalleled business (it has no industry peer), even if I'm alone with my slackjaw.
Mellon Bank (NYSE: MEL) rose a fraction in today's negative Dow market. The company's Pacific Discount brokerage branch is quickly expanding and Mellon is considering more Internet-based initiatives. Chairman Martin McGuinn was recently interviewed.
In a Foolish side note, Fool News and Drip Port writer Brian Graney (OTC: BGY) announced the IPO of BrianGraney.com. His IPO should raise at least $98 million. Currently lacking revenue, the site will offer a daily diary of Brian's melodramatic life. (In addition, Brian may take TMFPanic.com public next week.) The Rule Breaker Portfolio has dismissed BrianGraney.com for Rule Breaker status because it isn't an "important, emerging industry." Online diaries are merely an emerging industry, period.
(Seriously, with CNN anchor Lou Dobbs leaving CNN to reportedly invest in or build Internet businesses, and with IPO drkoop.com (Nasdaq: KOOP) raising $81 million yesterday, it's hard not to believe that something like BrianGraney.com couldn't work. Visit Amazon.com and buy a book on HTML, everyone.)
When to Sell, or Not?
Returning to our study of investing in existing businesses (which is important, too), yesterday's column addressed the issue of selling. (Perhaps you'll sell to invest in your own Internet venture.) In general, I like the idea of selling when you believe that you have found some place better for the money, but we listed several other potential reasons to sell yesterday, too.
On the Drip message boards, Fools like GLSmyth (George) responded on the topic. Perhaps George summarized the issue of selling best when he said (paraphrased): if you know why you buy a company, you usually know when to sell it, too. George's post on his sale of Eastman Kodak (NYSE: EK) follows. (Thank you to everyone for your thoughts on selling. If you have thoughts today, please post them.)
"My opinion on selling has always been that if you know why you bought, you'll know when to sell.
"As an example, I started a Kodak DRiP a while back. I liked the fact that they were moving strongly into the digital arena and saw them as the obvious early-mover in this area. Silver gelatin film and paper will certainly move into the realm of alternative processing at some point in the future, and I expected to see Kodak where they were when silver gelatin technology was young -- dominating the market.
"However, Kodak ran into a rough patch in their difficulties with competing with Fuji. I didn't mind the drop in Kodak's price, but I was alarmed to see that they had cut their research and development expenses. It was this money that helped develop T-grain technology, making the Advanced Photo system possible (this is a hybrid between silver gelatin and digital).
"I waited for the next quarterly report to examine these expenses and saw them continue to drop. At this point, Kodak had slashed so much spending that their earnings per share was affected positively. The price shot up as a result, but I didn't like the numbers I had seen.
"The third quarterly report showed a continuation of this trend, and at that point I accepted the fact that Kodak was certainly not moving in the direction for which I had initially started my DRiP. I sold my shares and distributed the proceeds amongst my other DRiPs. Cheers -- george."
See you on the boards. Drip on and Fool on!
Would you work for a bunch of Fools?
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