The Business Press Maven has a score to settle today.
To all those many readers who wrote to tell me I was speaking nonsense on the direction of
earnings when I said the price war with
Advanced Micro Devices
would continue to take its toll, I have only one thing to say to you: Good call!
Intel reported third-quarter earnings yesterday, and, top line to bottom,
they were excellent. They were excellent as stand-alones and compared with expectations, which -- in the age of the expectations, this is always key to mention -- were raised as recently as last month. Extra impressive.
Now, let me be clear that it's a touch easier to speak about why other people are wrong instead of why you are wrong. That's what separates us critics from those who actually produce something for a living. But in a superhuman effort, I'll give self-reflection a whirl.
Because my predictive writing about Intel was, for the most part, as off as anything I've produced. And since I preach the importance of the business media owning up to mistakes in the service of investors instead of blithely writing both sides of a story, I'll do the same.
Back in July, when Intel reported its second-quarter earnings, I was highly critical of the business media for focusing on the company's strong revenue instead of its disappointing profits. I also chided the business media for not being suspicious enough of Intel's claim that even though pricing pressure (euphemism for the war with AMD) was worse than they expected in the second quarter, margins would improve markedly in the third, by more than 500 basis points they said.
spit some bile at Kevin Sellers, Intel's director of investor relations, who wrote me a respectful note about what he felt to be a key issue that "no one picked up on"-- the reduction of inventory in the second quarter.
Well, now -- with Intel's excellent third quarter in the bag, it is time to ask: What went so horribly wrong?
On the most basic level, I erred by making any big call in the microchip business. It is notoriously one of the most volatile businesses in all of high technology, itself a violate business.
And though I allowed that Intel was a "great" company and that if "any company could achieve such a reversal in fortune, perhaps Intel can" (don't believe that typical journalistic tush covering), I underestimated how much progress they would make on the cost side. Don't forget that a good operation can cut costs with great artistry.
And, giving me some due here, cost cuts are, in the end, a temporary measure. The company dumped 2,000 employees in the third quarter and will dump another couple of thousand in the fourth, but with only 80-something-thousand left, that can't go on forever ... even if you put Mr. Burns in charge.
But continue flogging The Business Press Maven, because that top line was great too. Cost cuts did not contribute to that. With my eye fixed on what the business media too often overlook (pricing pressure), I did not, even with my overall positive outlook on the economy, foresee computer sales (hence, the sales of the microchips that power them) to be as remarkably strong as they were.
Intel's new products (readers right again, Business Press Maven wrong ... again) were more enticing than I had surmised.
So, in the end, Intel beat AMD in the price war and can declare "mission accomplished," right? Well, let's go there for a moment.
If you look at this morning's coverage, you'll see that the business media are looking at the average selling price of the company's microchips (the key metric in this regard and certainly a more longer-lasting contributor than those ephemeral cost cuts) several different ways. No matter what happened this quarter and no matter what unfolds next, this is central to the company's future.
The Wall Street Journal
, the company's new products allowed the company to keep its average prices flat compared with the second quarter, and this was an "upbeat sign." While willing to bewail his mistakes, The Business Press Maven will still side with
The New York Times
on this essential issue, though. The
portrayed the static average selling price as a negative, noting that it was "offset by increased sales of microprocessors." The
Associated Press sided with The Business Press Maven and
The New York Times
, though, Alexei Oreskovic went a step further than all of us, pointing out that at the low end (where Intel competes most directly with AMD),
prices were down sequentially. Still, Oreskovic noted, getting at the center of Intel's challenge, overall prices, while flat, did beat expectations, although the company is still proceeding with caution, considering the low-end competition.
So there you have it, submitted for your disapproval. The Business Press Maven made several mistakes on Intel, from taking a stand in the ever-fluid business of microchips to not paying enough heed to the company's ability to fire or roll out attractive new products. But while many readers were right and I was wrong, I still believe that we must go forward jointly, keeping a keen eye on pricing trends. The company can't fire 80,000, nor can it roll out products endlessly or rely on the lifting tide of increased sales of computers.
So, readers, celebrate your victory over me. But, together, let's still proceed with a bit of caution. It is better to be safe than sorry ... and The Business Press Maven knows from sorry.
At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.
A journalist with a background on Wall Street, Marek Fuchs has written the County Lines column for The New York Times for the past five years. He also contributes regular breaking news and feature stories to many of the paper's other sections, including Metro, National and Sports. Fuchs was the editor-in-chief of Fertilemind.net, a financial Web site twice named "Best of the Web" by Forbes Magazine. He was also a stockbroker with Shearson Lehman Brothers in Manhattan and a money manager. He is currently writing a chapter for a book coming out in early 2007 on a really embarrassing subject. He lives in a loud house with three children. Fuchs appreciates your feedback;
to send him an email.