Intel - Summary
|5 yr Revenue Growth
|5 yr Earnings Growth
|As of 1/14/2000
|My estimated price per
||$75 to $85
(38 PE, 10 PS)
Results over the past 3 years
||Growth Rate (97
Business Outlook: Intel has some of the industry's best management and
excellent product development and manufacturing technology. The revenue
and earnings growth at Intel have slowed down as the company has grown.
Intel dominates the PC CPU chip business and Intel's growth is driven by
the growth in demand for PC's. Intel is moving to expand their business in
networking chips, by the results of this have yet to be shown.
At the current pricing, Investors have to believe that Intel's revenue and
earnings growth rates are going to be picking up from the historical
levels. If the revenues were to continue to grow at 8% to 12% range then
the current stock price seems pretty high for that growth rate. A more reasonable
price for the stock would seem to be in the low 80's.
Intel is the leader in semiconductors for PC's and is growing their market share in networking semiconductors.
At the high end of PC's chips they have lead the market for years. Now, AMD
is giving Intel a serious challenge with AMD's new 800MHz chips and faster
850 and 900 MHz chips coming in the spring of 2000. In the past Intel
could respond to AMD's competition by cutting prices on the lower
performance CPU's and keeping the margins high on the higher performance
CPU's where AMD could not compete. Now, AMD has competitive processors
over the full range of Intel's performance range. Price reductions to meet
AMD competition will now cover the high performance and high margin
processors as well as the lower range products. It is my projection that
Intel's margins are going to be flat or reduced in the coming months.
Intel is sitting on a huge amount of unrealized
capital gains from the investments they have made in related technology
companies over the years. In Q4 the interest and capital gains contributed
some 24% ($508M) to the quarters $2.1B earnings. While this helps turning
in good performance, it also shows that the operational earnings from the
chip business are under margin pressures.
In 1999 it is estimated that some 110 million PC's
were sold worldwide, including servers, desktops, and laptops. In the
fourth quarter estimates are that Intel shipped some 30 million CPU chips
for PC's, so they would be at at run rate of some 120M PC CPU's per year!
Sales of semiconductors for networking chips are
expected to grow at twice the rate of PC chips according to Dataquest. In
1999 Intel acquired 12 companies with a total value of some $6B to grow its
business in networking semiconductors. Right now networking chips are
about 5% ($1.5B) of Intel's business and are estimated to be growing (in sales) at
30% per year. However, in the fourth quarter this part of their business
was flat or down. (Sources: Intel
Statements, Industry reports)
Intel is also making a large investment in going
after the web hosting business (Intel Online Services). In 1999 IDC estimated that the web hosting
industry did some $1.5B in business and this is projected to grow to $12B
in 2003. Intel opened it first web hosting center in Santa Clara CA in
Sept. 1999 and is expected to open 11 more during 2000. The next one is
schedule for Fairfax County, Virginia in Q1 2000 and then Reading England
in Q2 2000. (Sources: Intel
Statements, Industry reports)
For 2000 Intel says, The company expects revenue for
the first quarter of 2000 to be slightly down from fourth quarter revenue
of $8.2 billion, due to seasonal factors.
Gross margin percentage in the first quarter of 2000
is expected be approximately flat with the fourth quarter. Intel's gross
margin expectation for 2000 is 61 percent, plus or minus a few points,
compared to 59.7 percent for all of 1999. In the short term, Intel's gross
margin percentage varies primarily with revenue levels and product mix as
well as changes in unit costs.
PC CPU chips - AMD, Network chips - Texas Instruments (TXN), Analog
Devices (ADI), Conexant Systems (CNXT),
Position: I sold the stock as of Jan 18, 2000