Intel rebound tied to its new chips


What on earth has happened to my shares of Intel Corp. this year? Is there hope for the future?

- J.L., via the Internet

The world's largest semiconductor chipmaker is combating increased competition and eroding market share by restructuring, downsizing and rolling out products based on its more powerful and efficient new Core technology.

Chip industry inventories continue to rise because of disappointing sales of personal computers, and laptops in particular, on worries about interest rates, the economy and the stock market. Intel makes 80 percent of processors in PCs.

Also, competitors such as Advanced Micro Devices Inc. and Texas Instruments Inc. refuse to play dead. A decision by Dell Inc. to end its exclusive Intel relationship to buy AMD chips for some server systems was a shocker.

Shares of Intel are down 26 percent this year, after a 7 percent gain last year and a 27 percent decline in 2004. Intel is cutting prices of older chips, such as Pentium, to try to reverse a market-share decline and make room for new technologies, while aggressively selling off tangential businesses. Paul S. Otellini, who became chief executive officer a year ago, aims to cut $1 billion in operating costs this year.

Intel unloaded its mobile-communications chip business to Marvell Technology Group Ltd. for $600 million. Though it once had high hopes for the business, which manufactures chips that run software in cell phones and pocket computers, it continued to lose money. It still will make chips used in Wi-Fi and WiMax technologies.

New product introductions are crucial for Intel's future. Its Xeon 5100 chip that provides better performance while using less electricity is being used by more than 150 companies, including the big names Pixar Animation, BMW, IBM, Hewlett-Packard and Dell. It seeks to surpass the popular and lucrative Opteron chips sold by Advanced Micro Devices since 2003.

Because of the attractive price, Intel shares receive a consensus analyst recommendation of a "buy," according to Thomson Financial. But that is widely divergent -13 "strong buys," 14 "buys," 17 "holds," one "underperform" and one "sell."

Earnings are expected to decline 35 percent this year versus a 19 percent increase predicted for the broad-line semiconductor industry. Next year's forecast of a 29 percent rise compares with 19 percent projected industrywide. The expected five-year annualized growth rate of 15 percent is in line with peers.

Intel will spend $1 billion in India and other emerging markets over the next five years to promote the use of computers. More than 70 percent of its sales are outside the United States.

How much of my portfolio should we put in stocks and how much in bonds? My wife and I are in our late 50s, and we plan on working for many more years.

- C.B., via the Internet

You'll need to take into account your entire financial picture, such as a future pension or fixed stream of income you can count on, before making this decision. Even then, it's not a cut-and-dried choice because it depends on personal-comfort level.

The classic senior portfolio is 60 percent stocks and 40 percent bonds. Because you both plan to continue working, a rule of thumb might be 70 percent stocks and 30 percent bonds.

"Your chances of living into your 90s today are huge, so you need to plan for a long life, and over an extended period stocks outperform bonds and do a better job of keeping up with inflation," said Marilyn Capelli Dimitroff, certified financial planner and president of Capelli Financial Services Inc. in Bloomfield Hills, Mich. "You'll also need an emergency fund of at least three months' worth of expenses."

Andrew Leckey writes for Tribune Media Services.

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