Intel Again
Bull Rebuttal
By
Brian Lund (TMF Tardior)
Oak has done a great job pointing out some trees, but he seems to be missing the forest. Intel certainly has struggled in the last year. It is facing renewed, reinvigorated competition from AMD. Its relationship with Rambus has proved costly, unproductive, and acrimonious. Its first 1+ GHz chipset, which was an ill-advised patchwork of RDRAM and SDRAM, wound up as an expensive and embarrassing recall. All in all, it has not been a great year for Intel.
But what has been the result of all these problems? Record revenues, even higher margins, and continued market dominance. If these are the bad times, I wish them for all the other companies in my portfolio.
Intel still has to respond to these challenges, no question, but I have no reason to think that it won't. Intel has a long tradition of countering adversity with success. Remember the problems Intel had with the first Pentium chip in 1994? How about the Pentium Pro issue that Rob cited? Don't feel bad -- neither do I. Intel's subsequent performance made those blemishes totally insignificant in the long run.
We're talking about a company that has spent $3.6 billion -- or about 82% of AMD's trailing 12-month sales -- on research and development. That's an increase of 36% over last year. You have to presume a lot of incompetence from Intel, a company with an incredible performance track record, to think that it won't soon have the technological as well as the business advantage again.
Of course, much of that R&D money is going into new ventures. Rob correctly points out that Intel faces competition with lots of established companies in these businesses. That's just fine. Intel recognized this challenge years ago and has met it head-on. It has the lead in flash memory and in some network components. Again, Intel has plenty of work ahead of it, but note that it made $5.9 billion in non-architecture revenue in the last year. That's 33% more than AMD brought in from its entire business.
If I thought that Intel had lost its innovative or competitive edge, I'd say that Rob is right to highlight Intel's recent mishaps. Thing is, I just don't see any reason to think that. Chairman Andrew Grove wrote the book on surviving through paranoia. Intel has the technological and managerial know-how to respond to adversity and compete with any company in the world. It has proven that time and time again.
Intel will be to the 21st century what General Electric (NYSE: GE) has been to the 20th. Founded in an important niche, it continues to innovate and expand. One day it will be synonymous with all computing and communications components. Will we remember then that the first version of the Pentium 4 underclocked the Athlon?
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