Weekend Update #199
Thank you for your continued support and engagement. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.
The S&P 500 finished slightly up to continue its weekly win streak. Growing tensions in the Middle East weighed on stocks after Iran fired a barrage of missiles at Israel following an advance of armed forces into Lebanon. Conversely, haven assets were bid up with bonds, oil, gold and the US dollar all advancing. Israel vowed to retaliate, potentially striking Iran’s oil facilities, which would cause a further spike in oil prices.
U.S. companies averted major supply chain disruptions as a key dockworkers' union on the East and Gulf Coasts reached a tentative wage agreement Thursday night, bringing tens of thousands of workers back to the job. The strike, which began earlier this week, had disrupted ports from Maine to Texas. The deal includes a 61.5% wage increase over six years for ILU members, but key discussions about port automation are still under negotiation.
In economic data this week, the JOLTS report showed job openings rose to 8.04 million in August, surpassing expectations of 7.693 million, with the job openings per unemployed worker ratio rising to 1.13, the first increase since May. The quits rate declined to 1.9%, while the layoffs rate stayed steady at around 1.0%. The job openings rate grew to 4.8%, matching the pre-pandemic peak. Overall, the report suggests a positive outlook for the labor market, aligning with a soft landing scenario, with increasing job opportunities, declining quits, and stable layoffs.
Additionally, September nonfarm payrolls increased by 254,000, well above the 150,000 consensus estimate and up from August’s revised 159,000. This marks the third-highest gain of the year. The unemployment rate (U-3) dropped to 4.1%, its second consecutive decline from July's 4.3%. The labor force participation rate remained steady at 62.7%. This stronger-than-expected jobs report may influence interest rate projections as traders price in a smaller likelihood of a 50 basis point cut for the next Fed meeting.
Corporate Highlights:
Verizon Communications Inc., the biggest wireless carrier in the US, has agreed to sell thousands of mobile phone towers to digital infrastructure firm Vertical Bridge.
DirecTV and Dish have agreed to combine in a deal that will create the biggest pay-TV provider in the US.
OpenAI, closed a long-awaited funding round with a valuation of $157 billion. That includes the $6.6 billion
Stellantis NV slashed its forecasts for the year, citing plans to lower production and spend more on promotional incentives in a slowing and more competitive auto market.
Samsung Electronics Co. is laying off workers in Southeast Asia, Australia and New Zealand as part of a plan to reduce global headcount by thousands of jobs, affecting roughly 10% of the workforces in those markets.
Nike on Tuesday withdrew its full-year guidance and postponed its investor day as longtime company veteran Elliott Hill prepares to take the top job at the sneaker giant.
Friday’s Close (Weekly Performance)
S&P 500 5,751.07 (+0.22%)
Nasdaq 18,137.85 (+0.10%)
Dow Jones 42,352.75 (+0.09%)
Thank you Blue Room Analyst NICK PEART.
We are pleased to report that Fund One is off to a strong start to the quarter, even as the S&P 500 posted a slight decline to begin Q4. Although earnings season has yet to commence, recent market movements have been largely driven by Federal Reserve actions, key economic data releases, and geopolitical developments rather than company-specific factors. Overall, market sentiment remains cautious; however, we believe that forthcoming earnings reports will play a critical role in determining whether markets can sustain their upward momentum.
One of the key contributors to our performance this week has been our long position in Palantir Technologies, which has reached an all-time high. Based in Denver, Palantir is a leader in the big data analytics sector, offering software solutions that empower organizations to integrate, manage, and analyze vast datasets. Its platforms serve a diverse array of industries, providing essential insights that inform strategic decision-making.
Palantir's technology excels at addressing complex data challenges, including national security, fraud detection, and supply chain optimization, making it an invaluable asset for many organizations. With the growing integration of AI and machine learning into business operations, Palantir is uniquely positioned for significant future growth. The company’s strong financial performance and strategic market positioning are fostering increased investor confidence, which supports higher stock valuations and promising growth prospects
Our long position in Mobileye performed well on Friday, though it was a detractor for the week overall. With no significant company news recently, we remain confident in our investment. In fact, we’ve highlighted the encouraging price movements of this autonomous driving technology provider in our recent Spotlights. As we approach the start of third-quarter earnings reports next week, we will continue to closely monitor Mobileye and the rest of our portfolio holdings.
Thank you Blue Room Investing President JOHN FENLEY
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INTEL
FALL FROM GRACE
by MINYOUNG SOHN
BLUE ROOM FOUNDER & CIO
Intel was founded in 1968 and became a public company in 1971. The story of Intel really begins with Fairchild Semiconductor, which was born in 1957 when Sherman Fairchild, the wealthy son of George Winthrop Fairchild (co-founder of IBM), himself an inventor, was presented with the opportunity to hire the “Traitorous Eight,” a group of talented scientists and engineers, which included Gordon Moore and Robert Noyce, who wanted to start a new company that would usher in the next era of computing with radical invention in material science, pioneering the use of high purity silicon in transistors.
Robert Noyce, born in 1927, grew up in Grinnell, Iowa and attended Grinnell College where graduated in 1949 with Phi Beta Kappa honors. He was naturally brilliant and recognized by his professors for his potential in physics. He became interested in transistors and went on to earn a doctorate degree from MIT in 1953 and started work on germanium transistors for Philco, at the time, a leading manufacturer of advanced electronics (radios and TVs), based in Philadelphia. William Shockley was himself an accomplished physicist and inventor, who started his career at Bell Labs, and was awarded the Nobel Prize in Physics in 1956 for his leading role in inventing the transistor at Bell Labs. The intellectual connection formed, Noyce moved out west to Mountain View, California to join Shockley Semiconductor Laboratory.
From left to right:
Andy Grove: CEO of Intel from 1987 to 1998 / Robert Noyce: CEO of Intel from 1968 to 1975 / Gordon Moore: CEO of Intel from 1975 to 1987
Gordon Moore, born in 1929, grew up in Redwood City, California, and enrolled at San Jose State University, and transferred to Berkeley, where graduated with a degree in chemistry in 1950. He then earned a doctorate in chemistry from Caltech in 1954 and completed postdoctoral work at Johns Hopkins in 1956 before joining the upstart Shockley Semiconductor Laboratories, which had just been founded a year earlier by the Nobel Prize laureate.
Robert Noyce, not yet 30 years old, served as a loyal lieutenant, but he lost confidence when Shockley unexpectedly decided to cease work on the silicon based semiconductor while obsessing over his pet project, what would become the Shockley diode, whose scientific pursuit resulted in a product of limited commercial significant, and the loss of the immensely valuable intellectual human capital that his genius had attracted. Noyce joined Gordon Moore and other top physicists in a failed attempt to overthrow Shockley, after which they all left the company on September 18, 1957.
Arthur Rock (born in 1926) was a corporate banker for Hayden, Stone & Company in New York. He accepted a meeting with the Traitorous Eight and is credited with convincing Sherman Fairchild to fund the venture. It would be a big bet on the future of technology. Compared to germanium, silicon was a cheap and abundant raw material that would open up the possibility of a world of new affordable consumer electronics. Fairchild Semiconductor was created as a division of Fairchild Camera and Instrument, one of 70 portfolio companies founded by the investor and businessman.
Sherman Fairchild hit a home run. In 1959, Robert Noyce created the first integrated circuit built on silicon, which proved to be the most important invention in the history of Silicon Valley, and it would later be manufactured on the new planar process developed by Jean Hoerni, a revolutionary one two punch. The assembly of brilliant and talented scientists and engineers attracted other highly talented, brilliant and sometimes eccentric engineers such as Bob Widlar (born 1937), who invented foundational components of linear integrated circuits, away from Bell Labs. In 1965, Widlar’s efforts resulted in a revolutionary new operational amplifier, μA709 which became the company’s flagship product, putting the company as the leader in the new field of linear integrated circuits. The newly started Fairchild Semiconductor dominated semiconductors in the 1960s.
By 1967, trouble was brewing. The company failed to stay ahead of newly established competitors, pressured sales and earnings, and the misallocation of profits by the parent company to fund unprofitable ventures. In a move reminiscent of their failed coup experience at Shockley, Robert Noyce and Gordon Moore went to the Board of Directors of Fairchild. Noyce ran Fairchild Semiconductor, the most profitable business and Moore was the head of research and development. When the board declined to promote Noyce to the top job, the die was cast.
Photo Citation: Intel Free Press
In 1968, Intel was founded by Gordon Moore and Robert Noyce along with venture capitalist Arthur Rock (who previously helped start Fairchild Semiconductor and would later invest in Apple). According to documentaries which can be readily viewed on YouTube, Intel was a revolutionary company in both technological vision as well as its egalitarian corporate culture. Everyone sat in uniform cubical spaces, and even the secretaries received stock options. Human resource implementation of transistors working together in a single integrated circuit.
Intel became a public company in 1971. Intel’s 1103 chip became the best selling memory chip in the world by 1972. Intel began by disrupting the core memory market by introducing a new technology around dynamic random-access memory (DRAM) chips. Intel created the world’s first microprocessor in 1971, called Intel 4004. It was a revolutionary product which allowed smaller size machines to perform the same level of operations and computations executed by only the largest systems at the time. Memory was still Intel’s largest business by sales, but the microprocessor sales were growing rapidly with the growing popularity of the personal computer (PC) introduced by IBM.
In 1981, IBM introduced the IBM Personal Computer Model 5150, which would become the basis for all future personal computers across OEMs. Importantly, the IBM PC was powered by Intel’s 8088 processor, which was selected over rival processors due to 8088’s price to performance ratio and Intel’s ability to scale production, and the processors compatibility with IBM’s objective to maintain an open architecture. The Intel team delivered once again for their main backer. IBM dramatically beat internal sales projections with its market share exceeding Apple and Tandy and other competitors who had staked out leading positions.
Meta AI-generated image
From 1987 to 1999, one dollar invested in Intel would have been nearly $50 for capital appreciation of approximately 5000%. From 1999 to September 2024, that dollar would be worth less than $0.60 for a loss of 40% (excluding dividends) over that period.
x86 is the basic computer instruction set made popular by Intel based on the original 8086 microprocessor which powered the IBM PC. Intel 8086 and 8088 were 16-bit processors released in 1979. Importantly, the processor used the same microarchitecture which allowed it to run software produced for previous generations. In addition to IBM’s PC, the Intel 8086 powered personal computers designed and sold by Compaq, Xerox and Tandy.
Intel 80186 was launched in 1982 but did not see widespread commercial success because the chip was not compatible with the support chips selected by IBM for the latest iteration of its IBM PC. Intel 80286, was also introduced in 1982, was a 16-bit microprocessor which was backward compatible with the Intel 8086 and 8088 processors while doubling performance.
Intel 80386, also known as the i386 Processor, was a 32-bit microprocessor introduced in 1985. The Intel 386 processor would be used in high end workstation and high configuration personal computers.
Intel 80486, also known as the 486 Processor was introduced in 1989, and was a vast improvement over the 386. Intel 486 introduced floating point calculations and on die cache memory in addition to doubling clock speed which meant a doubling of performance.
Intel Inside was a brilliant marketing campaign which cemented Intel as the premium brand for microprocessors. Developed by an Intel marketing executive and MicroAge, a leading regional computer reseller at the time, Intel discovered that persistent advertising resulted in the desired outcome of consumers recognizing Intel as the premium CPU brand.
Intel introduced the Pentium brand in 1993. Intel, freshly off the new Intel Inside platform, decided to alter how it marketed the 586 Processor. Andy Grove himself weighed in on the matter that Intel’s newest processor would be called Pentium, which ended the marketing practice of associating increased performance with arbitrary designations such as model number and clock speed. For decades to come, Intel’s highest performing consumer CPUs would carry the Pentium brand.
Intel introduced the Celeron brand on April 15, 1998. The first generation of Celeron processors became very popular with PC enthusiasts, because Celeron offered very good value for the price. Hobbyists loved the ability to overclock the chips, meaning they could enter the system settings on the motherboard and instruct the chip to run at higher clocked rates, essentially boosting performance for free.
Over time, Intel would disable and reduce Celeron features and functionality to prevent the low end part from being “too good” and cannibalizing the high margin Pentium business. Ultimately, Celeron was a viable low end brand for Intel to position against the value based competition from AMD and Cyrix.
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