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THE TIMES 100 : VIEW FROM THE STREET : Record-Breaking Intel Corp. Keeps Cashing In on Its Chips


SAN FRANCISCO — It's hard to have a better year than Intel Corp. had in 1992. Not only did the Santa Clara chip maker post record profit and revenue while claiming the title of world's largest semiconductor company, it also finally gained recognition for a longstanding reality: Intel is the most important company in the computer hardware industry.

It is Wall Street's belated understanding of this fact that accounts for Intel's lightning leap up The Times' ranking of California's most valuable companies. Intel's share price nearly doubled during the year, sending its market value soaring to more than $24 billion and vaulting it past such venerable titans as BankAmerica Corp., Pacific Telesis Group and Walt Disney Co. on the Market Value 100 list. Market value is calculated as a firm's stock price times the total number of shares outstanding.

"With the restructuring of the computer industry, the role that Intel plays has become obvious to the investment community," says Andrew S. Grove, Intel's chief executive. "They've always considered us a semiconductor company. Now people are starting to look at us as one of the key companies in the computer industry."

Indeed, for many institutional investors, Intel--along with software powerhouse Microsoft Corp.--has replaced struggling International Business Machines Corp. as a core technology stock holding.

Analysts see nothing but continued growth and profit for the company as it continues to roll out new versions of its personal computer microprocessors, including the popular 486 and the powerful new Pentium chip.

Microprocessors, which can cost from less than $20 for old and simple versions to more then $500 for a state-of-the-art 486, are the single most important component in a PC.

"It's just a fabulous stock," gushes Mel Phelps, semiconductor analyst at Hambrecht & Quist, a San Francisco investment firm. "What IBM was in the '50s and '60s and '70s is what Intel is now and (will be) in the 21st Century."

Of course, even such a cheery story has its sober chapters. Intel stock has taken a beating following an adverse court decision in a long legal battle with rival Advanced Micro Devices. Intel stock dropped $10 a share in two days late last week, to $92.75, after AMD announced it was shipping a clone of Intel's 486 microprocessor chips. The court ruling allowed AMD to begin marketing its version of Intel's highly profitable chip.

Competing with AMD, Cyrix and others who cloned the 386 and are now honing the 486 is only one of the complex challenges Intel faces. The company must also parry a threat from vendors of so-called RISC microprocessors, who are counting on new software from Microsoft to move them out of their niche in engineering workstations and make them genuine alternatives to Intel in the personal computer world.

In both of these areas, Intel is counting on the Pentium, which has just hit the market. With more than 3 million transistors on a fingernail-size piece of silicon, the Pentium packs nearly the power of the RISC chips supplied by IBM, Sun Microsystems, Digital Equipment Corp. and Silicon Graphics Inc. But unlike its rivals, the Pentium will allow PCs to run all the software written for earlier-generation chips such as the 386 and 486.

Intel will push computer makers--and thus consumers--to move quickly from the 486 to the Pentium, though it will probably be at least a year before Pentium-based systems are cheap enough for most buyers. At the same time, Intel will try to persuade so-called power users that Pentium offers everything the RISC companies can and more.

Michael Slater, publisher of the respected newsletter Microprocessor Report, says Intel will face many more challengers in the future than it does today. Still, with the business as a whole growing nicely, "they can do very well even without the dominant position that they've had," Slater says.

And Intel isn't content to play only in desktop PCs. The company is pushing hard to get its chips built into next-generation products such as pocket-size computers and digital cable TV boxes that will be used to provide so-called interactive TV services.

Intel is also selling supercomputers that link hundreds or even thousands of its chips together. And it's mining several new business opportunities: building computer accessories that enable PCs to attach to networks or store and replay video images, and producing a new kind of memory chip that will be vital for many types of portable computers.

In these new areas, Intel doesn't have the enormous advantage it gained from being the inventor of the microprocessors used in the original IBM PC. It will be competing head-on against potent rivals ranging from Apple to IBM to Motorola to NEC. And if the company does stumble, there will be many in the industry--from small competitors resentful over Intel's aggressive marketing and legal tactics to PC vendors who feel too dependent on the company--who won't be shedding any tears.

But Grove says execution, not competition, is his major concern. In a business where developing a new chip can cost hundreds of millions of dollars and building a new factory can cost $1 billion, there isn't much room for mistakes--even for a company that spent $780 million on research and development and $1.23 billion on plants and equipment in 1992.

"The biggest challenge we have is to execute a very ambitious and complex strategy within Intel," Grove says. "We intend to cover the higher range of computing while maintaining strict compatibility with past, present and future. . . . That will keep us busy for a while."

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