FRANK responds:
First off Pauly, it's not easy doing what you did and I think that you did a splendid job. I don't have enough space to respond to all of your points, so I'll just choose a few.
1) AMD's K6 chip is as good or better than the Pentium II. This puts Intel in a position it has not been in for years. It will not control price on the high end.
2) Intel's stock buybacks are deceptive, as the shares bought back are generally given away in employee stock options. We should also remember that Andy Grove (Intel's CEO) sold stock at $120 per share.
Here are a few points to consider: Intel may be able to cut prices at will, but what if that isn't enough? What if AMD or Cyrix cut prices further? What if price cuts do not raise sales in proportion?
I'm glad you brought up the $2 billion research budget and the quest for the next "killer application." The problem is: You can throw around all the money you like and some small company will still stumble upon the application instead of you. So will Intel just buy that little company? Maybe, but the next "killer app" will likely not fit into Intel's business plan. I am amazed that Intel is supporting the Net PCs, as this new product will cut Intel's margins.
Your low P/E ratio comes from earnings projections for the end of 1998. Intel just gave an earnings warning, and although that low P/E you mention is based on the already lowered earnings estimates, it makes more sense to look at the present P/E. It stands at over 20, which is at the high end of Intel's historical range. Intel's stock price could drop in half and still stay within the historical range.
I hear over and over that Intel has a first-class management team, but, in fact, many of the original team have moved on. Is the new team as capable? Are they paranoid, or is that only a saying?
-- Frank Palardy ([email protected])
EPILOGUE
Over? This curtain never drops.
Whether you think Pauly's got one of those defective Pentium chips in his head or Frank's railroad analogy is all Shining Time Station, there is certainly room for more thoughts -- your thoughts. So, check your chips at the door and head over to the Intel message board to read even more opinions and post your own.
NEXT: The Intel Message Board