Intel the boom and the inescapable Bust
Fortune’s cover story, Intel Andy Grove’s Amazing Profit Machine and his plan for Five More Years of Explosive Growth is capped only by Tome’s Man of the Year story, Intel’s Andy Grove, His Microchips have changed the World – and its Economy, 1997 was the eighth consecutive year of record revenue ($25.1 billion) and earnings ($6.5 billion) for the company Grove helped found. Yet at the beginning of 1998 the real question was, Will the world change Intel? Judging from Intel’s own forecasts for a flat first quarter in 1998, chairman of the Board Grove and his associates were concerned that the financial meltdown in Asian markets would affect Intel’s plans for five more years of explosive growth,. Some 30 percent of the firm’s record 1997 revenues had come from Asian markets. Indeed one pundit had earlier predicted, I see no clear technology threats. The biggest long term threat to Intel is that the market growth lows. Others warned there’s something wrong out there: computer industry overcapacity.
Actually Intel had an even longer list of threats all posted as a disclaimer to its published forecast; Other factors that could cause actual results to differ materially are the following : Business and economic conditions, and growth in the computing industry in various geographic regions, changes in customer order patterns, including changes in customer and channel inventory levels, and seasonal PC buying patterns; changes in the mixes of microprocessor types and speeds motherboards, purchased components and other products; competitive factors such as rival chip architectures and manufacturing technologies , competing software compatible microprocessors and acceptance of new products in specific market segments; pricing pressures changes in end users preferences risk of inventory obsolescence and variations in inventory valuation; timing of software industry product introductions; continued success in technological advances including development implementation an initial production of new strategic products and processes in a cost effective manner; execution of manufacturing ramp; excess storage of manufacturing capacity; the ability to successfully integrate any acquired businesses enter new market segments and manage growth of such businesses; unanticipated costs or other adverse effects associated with processors and other products containing errata; risks associated with foreign operations; litigation involving intellectual property and consumer issues; and other risk factors listed from time to time in the company’s SEC reports.
Time’s Man of the Year had a lot to worry about – most of all that industrial market booms are always followed by busts. Will the rise truly last five more years?
How is it that the brilliant Mr Grove didn’t see the inescapable bust coming? Hadn’t he been in this cyclic business from the beginning? His boom I last another three and a half years beyond his 1997 prediction not five. And the bust has been an ugly thing. Sales revenues declined by more than 20 percent during 2001, the stock price crashed from a high of $75 a share to below $20 shedding 80 percent of the company’s value along the way, and 11,000 layoffs were announced. Ouch!
The lesson here is a simple one: In Industrial markets, including the global ones, what goes up must come down!
While everyone is familiar with most of the consumer brands described, sales of such products and services do not constitute te majority of export sales for industrialized countries. Take the US, for example. The main product the country sells for international consumption is technology. This is reflected in categories such as capital goods and industrial supplies, which together account for some 46 percent of all US exports of goods and services. Technology exports re represented by both the smallest and the largest products – semiconductors and commercial aircraft, the latter prominently including America’s export champions, Boeing’s 747s. The two most valuable companies in the world at this writing – Microsoft and General Electric are sellers of high technology industrial products.