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Intel’s Earnings Torpedo
Objectives of Intel Case
⚫Illustrate the role of sales growth rates and
gross margins as the two key drivers of value.
⚫Illustrate how the extrapolation of unusually
torpedo’, whereby stock price takes a sharp
drop when these growth rates slow.
Sales Growth At Intel
⚫‘99 sales growth = 11.9%
⚫1Q ‘00 YoY sales growth = 12.9%
Gross Margins At Intel
⚫1999 gross margin = 59.7%
⚫1Q ‘00 gross margin = 63.0%
⚫2Q ‘00 gross margin = 62.9%
⚫Original forecast of 3Q ‘00 gross margin = 63-
64%
Question 2. Suggested Model
Assumptions
⚫Sales grow at 28.3% in 2000 and trend down to 5%
over the next 20 years
⚫Turnover and financing assumptions constant at
eVal defaults
Question 3. Suggested Model
Assumptions
⚫Sales grow at 24.8% in 2000 and trend down to 5%
over the next 20 years
⚫Turnover and financing assumptions constant at
