The computer upgrade cycle is finally upon us! 2006 will be the year to throw out your old computer and to buy a new media computer. INTC has announced its new machine and partnerships with AOL, DirecTV and Google. The partners (others have and will join the group) will offer consumers the opportunity to search for, find and play music, TV, games and movies.
The hardware will make it easy to view the internet on TV, and to view TV on computers. The programs will provide most of the abilities of TIVO and some extra neat tricks to boot. Consumers will watch the nightly news when they want to watch; Google will serve as the conduit for thousands of videos, some of which will be pay-per-view offerings.
The "Chickens Little" who have been squawking that the increases in the price of gold, copper and other metals shows that inflation is out of control should note the explosion taking place in consumer electronics. They should also appreciate that the finished goods prices are going down. It seems counter-intuitive that input prices are going up while finished good prices are going down, but the reality is that raw materials are only a small fraction of the total costs. The labor costs are dropping because less labor is being used per unit of production.
Chase the oil stocks all you want, but that story started in 1999 and ended in 2005. The new story is about the huge change taking place in information distribution. INTC and GOOG are among the leaders in this change.
INTC made the chips in 90% of the world's personal computers. AMD has done a great job, particularly in recent years, as the second "man on the totem pole". The new INTC chip is designed to do things the AMD chip will not do. INTC no longer has a 90% market share but billions of computers will be sold with the new chips. The difference in the new chips (with the media software provided by MSFT) is bigger than the difference in the Model T and Model A automobiles.
In the past, I have suggested that the 'big bull' is about to stampeed. I hear a thundering noise and feel the earth quivering. Jump onboard technology stocks-- the margins on the new INTC chips will be substantially higher than margins on existing commodity chips.
INTC 1-yr chart:
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