Money
& Investing 
The “Big Cap Ripple Effect,” Intel’s New Chips to Lift Some, Topple Others
The big-cap ripple.
No, that’s not the name of the latest dance craze. It’s the effect a big-cap issue, say Intel Corp. (INTC), could have on companies linked to it in some way through the semiconductor, computer, software or telecom industries.
Several years ago, I got a big kick out of an article published in the largest business newspaper in the U.S. because it called Chandler, Arizona, the “backwater.”
Obviously, the Eastern dude who wrote it never knew what he was talking about. The Chandler and Phoenix area is booming and is the home of several major Intel plants.
One of the most important is the Intel Fab 32 plant in Chandler. Intel recently put $3 billion into the plant to ramp up production of its first 45nm processors. In layman’s language, that is Intel’s new Penryn processor chip.
Intel is moving away from the silicon dioxide layer for chips that gave silicon valley its nickname. Instead, Intel will use a new manufacturing process involving the element Hafnium.
Many analysts have become bullish on Intel’s stock because of the potential boost in profits from the Penryn. They say it will perform better than other chips and cost less to produce. In addition, they see Penryn boosting Intel’s business in the more lucrative server market.
Intel introduced the Penryn processor in mid-November at presentations in New York and San Francisco. Intel said the Penryn will use Hafnium-based high-k metal gate silicon technology -- the biggest change in transistor technology in 40 years.
Analysts see Intel getting a big jump on the competition, and several are forecasting a significant increase in earnings in coming quarters. The story sounds great based on the fundamentals.
A savvy investor knows that there is always more than what meets the eye when it comes to making money investing in stocks of major technology firms. Also, there could well be smaller “cousin stocks” that supply or work with the bigger firm, whose stocks could do well too.
Since the middle of last year, Intel’s stock has climbed from 17 to 25, a 47 percent appreciation. The stock remains in an up trend. Earnings this year should jump 42 percent to 1.19 a share from 84 cents a year ago. Near term, analysts expect intel to rack up a 58 percent gain in net for the fourth quarter and a 50 percent improvement in the first quarter of next year.
The ripple effect?
Intel’s two largest customers are Dell, Inc. (DELL) and Hewlett-Packard, Inc. (HPQ). Since the middle of last year, Dell’s stock has advanced from roughly 20 to 30, a 50 percent gain. HP’s stock has run up from 30 to 51, a 70 percent gain Both firms are showing good earnings growth.
Microsoft Corp. (MSFT), whose new Vista software plays into the sales of computers, is doing well, too. Profits for the fiscal year ending June 30 should be up 21 percent. The stock has soared from 21 at the middle of last year to 35 -- a gain of 67 percent.
The big-cap ripple effect from Intel can also upset some stocks. One, in particular, is Advanced Micro Devices Inc. (AMD), which makes microprocessors that compete with Intel. AMD is feeling the heat of competition from Intel. AMD’s stock has tumbled from 40 last year to 12.
This year, AMD is expected to show a loss of 2.73 a share compared with a profit of 83 cents a share a year ago. Next year, analysts see more red ink -- a loss of 81 cents a share. In a way, an aggressive investor could look to short stocks, which get upset by a “big-cap ripple effect”.
Mr. Fasciocco’s is publisher of Ticker Tape Digest at www.tickertapedigest.com. He is a contributing writer for several national publications. To get a free trial subscription to the Ticker Tape Digest Pro Report, which comes out daily with a stock market video show, go to: www.tickertapedigest and insert this username: freetrial and this password: stocks. Mr. Fasciocco can be reached at: leo2@tickertapedigest.com.
