Intel – A great buying opportunity. Intel stock is under tremendous selling pressure lately due to the following:

1. It’s battle in the low-end microprocessor market with the likes of AMD and Cyrix. This is of particular concern, as this segment of the PC market is expanding rapidly and generating lower margins.

2. Intel announced in early June that it is pushing out the release of its next generation chip, Merced, that the company is co-developing with Hewlett Packard.

3. The Federal government recently filed suit against the company, claiming that Intel withheld key technical information from its customers, suppliers and competitors.

Why Aggressively Buy the Stock?

Vision: Chairman Andy Grove envisions connecting one billion computers in a worldwide network. Only approximately 300 million computers have been sold to date.  The tremendous demand for computers in Asia and Europe ensures that the PC will soon be as common in the home as the television.

Value: The stock provides excellent value at current prices. Intel shares trade at only 16 times our 1999 earnings estimate of $3.75. Intel generated an admirable $5.50 in cash per share or $10.0 billion from operations in 1997, its most recent fiscal year end. The company is able to fund all of its research and velopment and expansion from cash generated operations. Intel invested $2.3 billion in R&D in its most recent fiscal year end, which is more than the revenues generated by its closest competitor. Intel currently produces over 80% of the chips used today to power personal computers.

Markets: Intel chips are used more and more frequently in servers and workstations.

Future: The delay of the Merced chip is actually positive and the market is overreacting to the announcement.  Merced expects to add 3% to revenues on 1999, and Intel still plans volume production for 2000, after allowing for significant testing of the chip.  The testing is warranted as the chip is going to work across multiple platforms and run more complex applications.  The beauty of the Merced chip lies in its design, as the chip is it aimed primarily at the workstation and server market, both of which carry high margins.

Government Issues: The Department of Justice investigation will have no long term material impact on Intel. Intel faced similar investigations in 1993 and 1995 and in both cases was found not to have violated any antitrust laws.

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