Unscrambling Monday's Egg

Unscrambling Intel (NYSE: INTC)

Putting Intel through the Chicks' Dozen
by Chick Cheryl

NOTE: For the month of July, we decided to feature publicly traded companies from the states in which a few of the Chicks in our club roost. Following Georgia, Ohio and Minnesota, it's now time to spend a week out west! Welcome to California, featuring many a company on the Forbes 500 list. Grab your sunscreen and shades, lay back on your beach towel and get ready to learn a bit more about Intel, Hewlett-Packard, PacifiCare Health Systems, Charles Schwab, Walt Disney and Apple Computer.

1. Buy What You Know   What they do exactly, well, I've never been too sure. We'll certainly get into that. I do know that when out shopping for a computer, each one on display loves to boast that it has "Intel Inside!" I don't know who came up with that marketing idea, but shoot, it was brilliant. I know next to nothing about computers except maybe the difference between a laptop and a desktop, but I'll always check to make sure it has Intel in its innards. Next time I'm swinging through the Silicon Valley, maybe I'll stop by the Intel Museum and try to learn a little more. True story, apparently, they have great exhibits (always changing) about computers and their latest technology. There's even a Microprocessor Hall of Fame! Imagine the Griswald's (of "Vacation" fame) heading there instead of Wally World!

2. Keep It Simple Sweetie (KISS)   Intel is no small operation, employing over 85,000 people in 45 nations world-wide. Their mission is to do a great job for their customers, employees and stockholders by being the preeminent building block supplier to the world wide internet economy. Their core business consists of making microprocessors, otherwise known as CPU's (Central Processing Units). Basically, they build the "brains" of the computer.

3. Industry   Of course, everyone knows Intel is in the technology sector. Specifically, they operate in the semiconductor industry. Their competitors include Motorola, AMD and Texas Instruments. One would have to give Intel the edge, especially in difficult economic times, such as we're seeing now. This is when a beautiful balance sheet comes in handy. Just wait for the numbers section below to prove my case!

4. Leader In Its Field   I think a corporation has truly arrived once it can say it was featured in a question on the television game show Jeopardy. In 1994, host Alex Trebeck stated, "Their company's chips power 85% of all desktop computers." The answer: "What is Intel?" That's right, Intel is the world's largest computer chip maker and has designs on becoming the leading manufacturer of chips that power the communications industry also.

5. Repeat Profitability   As long as Intel succeeds in making their chips faster and faster, I think people will always be willing to upgrade. And that's just talking about computers. Microprocessors are all around us from the time we get up, until time for night night. They can be found in appliances, toys, alarm clocks, thermostats as well as our cars. In fact, one car can have over 50 microprocessors, running everything from the brakes to the seat belt reminder.

NOTE: For the following equations, I used Quarterly Report figures from the quarter ending 3/01. If you'd like to see those numbers for yourself, click on Research a Company and enter the ticker symbol: INTC.

6. Gross Margins

(Sales - Cost of Goods Sold) / Sales

(6677.0 - 3225.0) / 6677.0

3452.0 / 6677.0 = .52

.52 x 100 = 52%

  Good Golly, Molly! Its so much fun to see a company actually exceeding our expectations!

7. Net Margins

Net Income / Sales

485.0 / 6677.0 = .073

.073 x 100 = 7.3%

  Well, that is darn close to the Chick's 8% criterion, so I'm not going to call a strike yet!

8. Cash vs. Long Term Debt

Cash* / Long Term Debt

10,058 / 704 = 14.3x

*cash, including marketable securities

Wow, and they're rich too! Chicks like those companies with boatloads of cash.

9. Flow Ratio

(Current Assets - Cash*) / (Current Liabilities - Short Term Debt)

(18,739 - 10,058) / (7,387 - 479)

8681 / 6908 = 1.26

Again, Intel has met our expectations. Just one more equation to go.

10. Increasing Growth

(most recent quarter sales - last quarter sales) / last quarter sales = X

X x 100 = %

Sales from Q 3/01 = 6677

Sales from Q 12/00 = 8702

(6677 - 8702) / 8702

- 2025 / 8702 = - 0.23

- 0.23 x 100 = - 23%

  Uh oh. What the heck? Sales have decreased 23%? Ouch. Need to research that. Thankfully, I found my answer at the Motley Fool (www.Fool.com). Intel is in a highly cyclical business. Not necessarily quarter to quarter, but one that takes a few years to play out. They call it the semiconductor inventory cycle and like most others, it is based on supply and demand. As an example, imagine consumers getting worked up about the latest technology. Smelling the excitement, manufacturers either pick up the pace of their production output or if already producing at top capacity, they must make plans for more facilities. Such a manufacturing plant takes time, thus a temporary shortage may be created, jacking the price up of products. Unable to stop production on a dime, once demand inevitably begins to fade a surplus is created and profit margins are squeezed as products are slashed in price just to get them out the door. And the cycle starts again... this is the way they do business. Ok, smart Chickie, I bet you can guess at what point in the cycle Intel currently sits today. Yep, they're probably having a fire sale!

11. Strong Management and History   Intel has one of those management teams that's been around for some time. Chicks like that kind of stability. The company was co-founded in 1968 by the current Chairman and former CEO, Andy Grove. I think a testament to his management style is the fact that Mr. Grove's office is an 8 x 9 foot cubicle, just like all his co-workers. Grove has received numerous honors in his career, including being named Time Magazine's "Man of the Year" in 1997.

The company's current CEO and President is another man with a long history at Intel. California native, Craig Barrett has been with the company since 1974, becoming CEO in 1998. Since Intel is at somewhat of a crossroads trying to expand their business, the best thing an investor can rely on is sturdy management amidst a hazy future.

12. Buy On Sale
52 week high: 75.81
52 week low: 22.25
52 week average: 49.03
Current Stock price (as of  7/20/01 ): 29.93

Wow, no math required on this one! Just look at that 52 week trading range and any Chick can see that Intel has been seriously marked down. I must admit Intel is the 2nd best performer in my personal portfolio, beaten only by Oracle. I'm now wondering if this isn't a primetime for reinvestment?