The problem with Intel
The Wall Street Journal ran an interesting interview with Intel (INTC) CEO Paul Otellini the other day. A few things stuck out. First, in the three years Otellini has run Intel its headcount has dropped from 103,300 to 84,600, according to the Journal.
He also talked a lot about supplying chips to Apple’s (AAPL) iPhone, a no-brainer given that Intel has been a success displacing IBM (IBM) as a supplier of chips to Apple’s Macintosh computers. Otellini also reiterated what’d he’d told investors when Intel recently reported a better-than-expected first quarter, that Intel hasn’t seen any ill effects of a weak U.S. economy, or if there have been any they don’t “move the needle.”
Here’s what’s interesting about all of that to me. Exactly three years ago I wrote an article in Fortune about Intel and Otellini, who was new on the job at the time. I noted then that Intel’s stock price had been stuck for a while at $23, about where it had been in 1998. Intel’s close Wednesday: $22.26.
Yes, Intel pays a 56-cent-per-year dividend, up from 32 cents in 2005, so its total return is better than nothing. But check out its chart compared to the Nasdaq’s in the same time frame. Not pretty. The reason is simple. Yes, headcount is down, but so are revenues and profits.
In 2005 Intel had revenues of $38.8 billion, profits of $8.7 billion and earnings per share of $1.40. Last year the corresponding figures were $38.3 billion, $7.0 billion and $1.18. (An Intel investor-relations site has all these figures and more for the curious.)
If anything, Intel trades for a higher valuation to its earnings today than it did three years ago, though that’s got to be of small solace to its investors. As for its goal of supplying the iPhone, that’s aspirational. What the Journal interview hinted at but didn’t make clear is that Intel doesn’t supply the guts of the iPhone. In short, it’s no closer to its goal of moving “beyond the PC” than it was three years ago.
As for the economy, Otellini identifies the migration from desktop computers to notebooks as the reason Intel’s business has held steady. Still, Otellini has to move the needle in an entirely different way: Like Jeff Immelt at General Electric (GE), he’s got to get that stock up.
The writer of this article should gain more knowledge about the IT industry as a whole, instead look back into the past to determine future direction.
Just look at the big picture,
- AMD cpu is no match to Intel’s,
- CPU shipment will grow regardless people buying Mac or PC
- new Atom seems promising (yet to benchmark) compare to VIA’s and demand for low cost PC is so high (the trend will be application on demand like Google’s model).
- they are setting the stage to take a piece of supercomputer sector.
I sees Intel is dominating the CPU market and its stock is cheap.
3 years ago Intel blundered and missed a major shift in CPU technology. It lost it’s competitive pricing power and it’s been living with the consequences ever since. They’ve recovered in a big way, but until they get their margins back up the stock price will stay in the doldrums. Immelt has a completely different set of problems.
Lots of negative comments…. paid by Intel no doubt. But the intelligent investor will read between the lines and take note…..
Totally upside down story. This guy has no clue what Intel has done in the past 3 years and what’s ahead of Intel. Let’s be fair. Otellini & Intel have demontrated superb performance in the past 3 years.
“Like Jeff Immelt? What the hell has he done for GE except watch the shareprice drop?”
I hold some GE. I am convinced that economics conditions rather than Immelt were responsible for last quarter.
With regards to Otellini (INTC): AMD is no longer a threat. IBM /Motorola (PowerPC chips, now used mostly in games) are no longer a potential threat. Intel, effectively, has a monopoly and will for the forseeable future. And they pay 3%. I increased my holdings earlier this years.
Why doesn’t stock price climb? Idiots like you who write a half page “article” that doesn’t address market segment share, server business, shedding flash fabs to JV’s etc.
Really you get paid for this 8th grade drivel?! (sorry to offend the 8th graders who do a more complete job than this flunkie on book reports.
wow! Time to cut a few jobs your way….
Add Microsoft to you list with INTC and GE of the need to get the stock up. It hasn’t move in over 8 years (along with Intel)…
Extremely unfair view of Intel and what Otellini is doing. Just look at the fact that demand for Atom is so high that it’s already in short supply if you’re looking for evidence of new markets. And businesses like digital health take time to make an impact on the bottom line. INTC has tracked with virtually every other major player in the field over the same period, look at MSFT as an example - it’s the economy, stupid. To pick out INTC from the gigantic crop of major tech players that have not grown significantly in the past 5 years isn’t justified.
Like Jeff Immelt? What the hell has he done for GE except watch the shareprice drop?
H. Treat
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Wall Street watchers think of capital markets and financial players out west as being on the "other" coast. That's not how it's viewed in the Pacific time zone. From the venture capitalists of Sand Hill Road to the bond kingpins of Orange County to the corporate finance department at a certain software company in Redmond, Wash., there's plenty going on "out there." Adam Lashinsky should know. A native of Chicago, he has covered West Coast finance for a decade, with an emphasis on money matters in Silicon Valley. If it involves money and it's happening west of the Mississippi, look for it in Go West. 
“In short, it’s no closer to its goal of moving ‘beyond the PC’ than it was three years ago.”
I can’t help wondering if Mr. Lashinsky has been reading the news recently. The strong demand for Intel’s Atom processor shows that there is in fact a market beyond the the PC and that Intel has already moved there.
http://www.azcentral.com/arizonarepublic/business/articles/0502biz-intelchip0503-ON.html