Post of the Day
March 22, 2000
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Intel is a poor stock to buy for the long run.
Sure, this goes against the conventional wisdom on this site, but you can trust me, I'm a real nerd.
By real nerd, I mean that I'm not a big investor, I don't spend my days looking at PE's and market trends, I spend my time researching all things hardware and from what I have seen, Intel is in bad shape. First, disregard the idea that intel has a bunch of cash and therefore can be regarded as a monolith of the PC market. Remember IBM? They too were a huge company with obscene marketshare, but they fell prey to the smaller, faster underdogs and are now virtually excluded from the market they created. So will be the way of Intel.
As a first example, lets look at the recent shouting match between Intel and AMD. Gigahertz is the buzzword of the hour in the microprocessor market. Remember how Intel announced the launch of it's 1Ghz chip and then AMD did the same 2 days later? While it looks while Intel won that round, there is a severe difference between a launching a product and putting it in the hands of consumers. I refer you to www.tomshardware.com (a very well respected nerd-site) under "The Giga Battle" parts one and two. Basically the article says that while Intels chip is technically superior in some areas, it is not available.
|"If you run a business which buys computer products, it is likely your IT people choose which ones you actually buy."|
Try this yourself. Go to www.gateway.com, www.compaq.com and www.dell.com. You'll notice that you cannot buy 1Ghz PIII from either Gateway or Compaq. You can order one from Dell, but it comes with the warning "Please contact your sales representative for more information as estimated ship dates for the Pentium� III Processor at 1GHz will exceed 30 days." But you can get a 1Ghz Athalon (AMD chip) from Gateway or Compaq today. If Intel doesn ship these technological marvels soon, even stalwart Dell, now selling computers which currently do no exist, may defect to AMD.
Announcing a product but not shiping it is what nerds call "vaporware," a term that all tech investors should be familiar with. For a good example of vaporware check out http://www.theregister.co.uk/991018-000020.html It is the announcement of a 1.1Ghz chip from Intel to be shipped in December '99. Since there was no such chip, it's called vaporware.
This brings me to another point, nerd-support. If you run a business which buys computer products, it is likely your IT people choose which ones you actually buy. Those people are nerds like me and those people's opinion matter when it comes to PC sales. Recently AMD had aquired the blessing of a large portion of nerds tired of Intel. This comes from a number of bone-head moves by the huge chip maker. While Intel used to be a bastion against vaporware, refusing to release chip specs until those chips were firmly in the hands of OEM's (Dell, Gateway, Compaq, etc.) Intel has had a pinnochio problem recently. Most notably was the Rambus fiasco. (Check Tom's Hardware under the title "Dissecting Rambus") By pulling the plug on a highly hyped product at the zero hour, Intel not only lost the trust of nerds everywhere, but also that of Gateway and Compaq (both of which now ship AMD chips). With the 1Ghz processor, Dell is once again trusting Intel to produce a sold but unshipped product, but if Intel fails to come up with a chip in the magical 30 day, this time might be the last time.
More insulting to nerds, but less visible, is Intel's insistance that the PIII speeds up internet performance. (Check www.intel.com for these untruths). This is like saying that buying a new engine will make your car radio shound better. Even with a broadband connection, the speed of your network is dramatically less than the speed of your processor. I'm currently writing this post on an old Pentum 180Mhz hooked up to a cable modem and I promise upon my nerd's honor that hooking up a PIII would have little to no effect on my internet speed. This new moral flexability by Intel undercuts its nerd-base and gives huge underdog support to AMD. Remember when Linux was just a phase? Nerd-support turned that "phase" into IPO's of solid gold.
If you've read this far, and you're an Intel loyalist, then you're probably discounting all this hoopla as short term nerd-angst, but not too fast. 64-bit processors are the next step in the evolution of PC's which have been 32 bit since the old Intel 486. Both AMD and Intel are flexing their R&D muscle to make this trasition a turning point in the now-heated microprocessor war. It's too complicated to go into here, but I suggest you take a look at http://www.amdzone.com/articleview.cfm?ArticleID=163 It basically points out that while Intel's new 64-bit processor (if you don't know what your processor currently is, it's probably a 32-bit) is faster for native 64 bit programs, but much worse than AMD's 64-bit offering for old 32-bit programs. What that means is that ALL of your old programs (like Office 2000 or Windows 95/98/NT/2000) will actually run slower on the new 64-bit processor from Intel than they do now. Supporting old programs on new technology is called "legacy support." Intel seems to be forgetting that no one wants to dump all their old stuff and start over all at once, while AMD's stragtegy is based on that assumption.
|"A year ago, I would have said that Intel was sitting pretty...The market was theirs to lose."|
Ok, so maybe Intel is losing the Chip war to AMD, but it's changing its market to net devices, much like it moved from memory to microprocessors in the 1980's, right? Well, sort of. When Intel moved into the microprocessor market, it was a westward expansion. There were no well established companies in microprocessors until Intel. Intel's move into integrated net devices is more like moving from the western front to the eastern front. Companies like Motorola and Cisco have already staked out their claim on that territory and are experienced at defending it. And don't count on Intel's money to overpower their new adversaries. Does anyone remember Intel's graphics chip offering, the i740. You can check this link for a gushing review of this product. All that gushes is not gold however, as Intel has now withdrawn that product and all future plans of making a graphics chip after being soundly defeated by smaller companies like Nvidia and 3Dfx.
A year ago, I would have said that Intel was sitting pretty. Cyrix was dying and AMD had both inferior product and problems shipping in large volume. The market was theirs to lose. Somehow though, this champion of profit margin lost its footing and is now (debatably) behind AMD in technology and is having trouble shipping at all (forget in large volume). Sure the market smiles fondly on its historically beautiful child, but the market, ultimately is based on the buying and selling of physical products, which intel can't currently seem to find time to make. When AMD opens their new and technologically superior fabrication plant in Dersden, Germany, which will pump out copper coated chips (which offer a speed increase over current Aluminum chips) Intel may find itsel helplessly outclassed. Remeber that Intel's new chip codenamed "Coppermine" is named after a river, not its connectors which will be Aluminum. Blame Intel's stumbles on bloated lethargy, or overconfidence, but just be careful that when the giant falls that you're not in its shadow.
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