bambs,
Your analysis is accurate for a given snapshot in time and reflect very linear thinking.
Intels business is a very high-fixed cost business. When the revenue drops, most of the income disappears. But the same logic works in reverse. When/if the revenue jumps up, all the profit (and more) returns.
BTW, if the revenue doesn't jump up, then Intel can recover a lot of profits and margin back by cutting the fixed cost.
Intels revenue is about the 1998 level, when they had 20000 more employees than now. If Intel were to get rid of loss-making units and 20000 people with it (of course that will be extremely painful for the employees), than their earnings can shoot up ~$3Billion. In addition, if the demand is to stay down forever, then CapEx could go scaled down by another $2-$3 Billion. So getting back $5-$6 Billion revenue/profits is doable in the worst case. And that changes the whole picture completely. In this business, there is no gain without taking risks. And the gains can be enormous if the risk succeed. If yo do not take risk, it is certain death. The worst-case situation always looks worse than reality.
Look at AMD, almost 2 decades and they have gone nowhere (with respect to their stock price). They know there is a goldmine waiting there. But in order to succeed, they have to keep taking risks over and over again to the point of risking bankruptcy every few years.
Looking at PE is a very narrow way of looking at businesses like Intel, IMHO.
Maui. |
