by Doug Lyon, PhD
I have listened to all the conference calls, examined the intel line up, spoken with the dell sales reps, and checked out the dell lineup.
As you know, dell is now carrying AMD products. With AMD inside, the low end computer is now $329. The the low-end intel computer is $399. The intel machine has twice the disk space with a 3 GHZ P4. The AMD is a 3400+. However, the clock speed of the AMD is actually 2.4 GHZ.
There is dispute about which is faster. Benchmarks have intel beating AMD, hands down, but Intel fails to educate the public about this.
Also, at first blush, the intel line up is totally confusing. The new processor, has the Visual Instruction Set (VIS). This is geared toward Graphics and Imaging (i.e., games).
AMD's response to this is to buy ATI. Vista, MSFT's new OS will be the first OS to require hardware acceleration of 3D graphics. AMD is trying to catch up.
Intel is already well positioned to take advantage of vis to make Vista run FAST.
Hardware OEM's (like DELL) will not need an extra graphics card, once the VIS based intel processors get cheaper. This saves ($$).
This all depends on Vista being shipped to generate demand. Here is the latest news on Vista:
November 08, 2006 (Computerworld) -- Microsoft today officially finished the Release to Manufacturing (RTM) version of its upcoming Windows Vista operating system, with its head of development admitting he's relieved that the much-delayed operating system is finally ready to ship.
The RTM version is the first step toward the widespread availability of the operating system, which is slated to be available to corporate volume license customers via the Web or on CD sometime before Nov. 30, and to general consumers on Jan. 30, 2007.
Nevertheless, consumers and small businesses will not be able to buy PCs with Vista preinstalled from stores or small manufacturers before the Jan. 30 launch date, he said.
Impact on Intel's bottom line will not be felt until APRIL. However, the street typically anticipates these event by running up the stock before the release.
How fast will the street react? I don't know. Is Merrill correct in its analysis that intel will go up in 6 weeks?
I don't know. But if I were buying options in intel, I would like a 6 month time horizon, not a 6 week time horizon.
I plan to hold on for 6 months, unless the stock has a sudden run-up.
Are we are seeing end of year tax-loss selling in Intc? If so, Merrill may be quite right about the next 3 weeks being bullish on Intc. However, the Jan 07 Intc $20 call is 0.69 cents. This seems a little rich, for a call that expires in 20 days. On Monday, Jan 1, 2007, it might be time to back up the truck on Intc. Also, so far, the Merrill prediction has not worked out.
According to IDC, Vista pin action will cause 18$ to be earned by the software, hardware and service partners for every $1 that microsoft earns. It will create 100,000 new jobs next year. 40% of new PCs will run vista next year. 80% of new PCs will run vista in 2008. At the end of 2008, 40% of the installed enterprise base will run vista.
While it is true that Experts find flaws in Microsoft Windows Vista, Microsoft has a history of working out these bugs. And INTC is generally very disciplined with the roll out of new products.
In any case, bugs can slow the roll-out of a new OS. And the impact on INTCs' earnings is hard to predict.
OS flaws should not be confused with application flaws. The Internet Explorer 7 flaw is particularly troubling because it potentially means that Web users could become infected with malicious software simply by visiting a booby-trapped site.
While a serious application flaw, it is too easy to tar Vista with the browser bug. One browser does not an OS flaw make.
A serious OS bug is, for example: The flaw that makes it possible to increase a users privileges (a December 15th discovered bug). I am sure there will be a patch available for this, and soon. MSFT has a history of issuing bug fixes, and we can expect more bugs to be found in the future. However, if we are confident in MSFTs abililty to fix these bugs, we should not have to worry too much on their impact on earnings.