Intel = Enron?

Posted By: Van Smith

Date: January 23, 2002

The following is a letter sent to the United States Securities and Exchange Commission (SEC) by Richard M. Griest and forwarded to us.  We publish the complaint in its entirety.



                                                                                                January 18, 2002

SEC Complaint Center

450 Fifth Street, NW

Washington, DC 20549


Dear Enforcement Personnel:


The Enron scandal has caused the SEC to place increased emphasis on the government's role of assuring that people who buy stock have honest information. Honest information would address the question posed by Betsy Stark of ABC News, why 99.5 percent of analysts were all advising clients to buy at the start of the latest Nasdaq market correction. According to yesterday's Wall Street Journal, Nasdaqed is now a verb, meaning something or someone has hit the skids.  Nasdaq lost 61% of its value since March 2000. 


This complaint describes information that was withheld from the public, preventing them from making an informed decision on Intel stock and on the stock market in general, both which experienced significant downturns subsequently.  The impact is much wider than Enron, not just because Intel is owned by the general public, but because of its bellwether nature, it is of interest to all investors in the Nasdaq and Dow.


The information withheld, 12 out of the 27 paragraphs, of a thestreet.com article appearing on abcnews.com website on September 22, 2000.  The 12 paragraphs were deleted sometime between 9:22 am and approximately 5:00pm on the 22nd.


The deleted information was a dissenting opinion from analyst Drew Peck and a dissenting Associated Press article.  Contained within the deleted information were the following topics material to Intel stock price, pc sales and the market in general:


(1) "This is not a European problem.  This is a broad issue in the global PC business. Corporate demand has been dead for the last 18 months. The entire business is on the shoulders of the consumers, who are notoriously fickle."


[this dissented from the opinion left in the article - "Ever since U.S. Bancorp Piper Jaffray analyst Ashok Kumar downgraded Intel in early September, nearly every  brokerage house covering the stock has come out to support it.  The lone dissenting voice belonged to Banc of America Securities analyst Rich Whittingdon, who downgraded Intel last Wednesday, but guiltily reversed his position just a few days later with an upgrade to a higher price target.]


(2) "The effects of Intel's warning could be far reaching.  For all of 2000, analysts have clung to their expectations of a second-half surge in demand for personal computers and the components their manufactures need to assemble them.  Again and again, whenever something has threatened that hypothesis, the bulls have turned to Intel for reassurance.  Reports of rising PC inventories.  Falling prices in the spot DRAM market.  Even the entreaties of Microsoft, which this spring warned that sluggish PC demand from corporations would depress its revenue growth.  In each instance, Intel's claims that its chips were in short supply became ample evidence that the second-half story was still on track.  Unfortunately, the second-half story has never looked less tenable that it does right now."  "The warning from the world's largest chip maker could also raise red flags about the strength of the entire personal computer industry"  "Clearly, this is going to raise concerns.  We already know that the usual seasonal recovery that occurs in the PC market in August has been slow in coming, said analyst Dan Scovel of Needham & Co."


--[this dissented from the opinion left in the article - Even as analysts rushed to trim their outlooks for Intel's profits and sales, money managers were mostly upbeat about the company and the sector.  They said the drop in stocks was a chance to snap them up at bargain prices. "My immediate reaction is to load up and buy as much as I can this morning,: said Bernie Horn"  "But he's optimistic that the rest of the globe will make up for the European weakness, even though he calls the outlook for European PC sales, to which Intel's own sales are tethered, a disaster.  Niles therefore doesn't plan to cut Intels rating from the strong buy he currently maintains on the stock. ]--


(3) Scovel also said it's possible Intel is losing market share to rival Advanced Micro devices, which has been making major strides in the chip market during the past year.


--[there was no mention of loss of market share to AMD in the opinion left in the article]--


(4) Thursday's warnng comes at a dicey time for the stock market, which has been tubmling most of this month.  Besides being a bellwether on the technology-driven Nasdaq Stock Market, Intel is also one of the 30 companies that make up the Dow Jones Industrial Average.


--[ there was no mention in the opinion left in the article of wider implications of the decline of Intel's earnings as to what could be in store for the Nasdaq and DJIA stocks in general.]--


By December 15, 2000 it was widely recogized that it was not just an European problem as claimed by Intel and that the second-half story in fact never materialized.  An article on page C1 of the Wall Street Journal, "Intel Has Fewer Chips to Cash In" stated, "By now the impact of slower-than-expected sales of personal computers in the important holiday season is well known."  By December 15, 2001 a ZDNet article, "AMD on the rise...P4 heats up laptops" stated AMD had claimed 54 percent and 49 percent of PC markets in Japan and Western Europe.  It also increased its share of the U.S. pie from 17 percent to 27 percent.  Its biggest plus in the gargantuan U.S. market: small-business PC's where it now claims a 40% share, and government, where it's snared a 33 percent hunk.


In the six month period starting September 2000, the price of Intel stock dropped from $75.83 to $28.50.  At the third quarter 2001 Intel reported their earnings had dropped 96%.  There were precipitous declines in the Nasdaq and DJIA as well.


While I own no stock, I had been following AMD and Intel stock prices and competitive product reviews since September 1999.  I was particularly impressed with an article I encountered written by Van Smith February 9, 2000 titled "A Titan Falls - AMD Plays David To Intel's Goliath" found on a computer enthusiast website.   see http://www.tomshardware.com/column/00q1/000209


Mr. Smith, who is not a stock analyst, had contemplated that "Intel will push its information control machine into high gear; unleashing a steady flood of press releases, which their media stooges will uncritically parrot and even celebrate."  Clearly what I had witnessed was more sinister than parroting press releases uncritically.  It is hard to image a clearer case of all the negative news getting chopped out of an article.


In addition, access to the article was made more difficult, when it changed from being the lead story to a story displayed in the smallest point type used on the abcnews.com home page.  Bypassing in the process, the type size used for the 12 articles of intermediate importance, such as Cuba accusing U.S. of aiding piracy, the death of Robert Many Horses, backyard trampoline injuries, and weekend movies.  The implication being that ABC's viewers would be more interested in these subjects than the possibility of a total market meltdown.


Believing that investors in Intel and the market in general were being intentionally deprived of the complete story, I sent printouts of the before and after articles to Senator Fred Thompson and sent html files of the articles on a floppy disk to FBI Special Agent Daniel R. Pulley III, via certified mail 7000 0520 0014 7946 2335 on September 23, 2000, the day after seeing the article. 


Learning that the SEC's policy of being a "kindler and gentler place for accountants", espoused by Chairman Pitt on October 22, 2001 has given way to one of giving the public a role in the oversight, I now report this incident to you.





Richard M. Griest


cc: Ms. Bethany Mclean - Fortune Magazine

      Mr.  Steve Shepard - Business Week

      Chief Legal Counsel - AMD Corp


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