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Strategies & Market Trends : Value Investing
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To: kolo55 who wrote (3857)4/16/1998 8:11:00 PM
From: Andrew  Read Replies (2) of 78476
 
Interesting point on any valuation (eg. intel)

For the last several quarters its gone on unnoticed (until now by mgmt) that intel has been growing its work force at substantially faster pace than sales. Further S,G&A wasn't growing as fast as work force. So I asked where were the bodies being buried? It seems most of these fixed costs were going into production and thus COGS. So what's the big deal, you ask? If more and more fixed costs are going into COGS, the "operating leverage" of Intel rises to levels not seen since intel small early days. Operating leverage is no different than financial leverage in that it increases volatility of earnings. The point I am making is that the predictability in intel's earnings has been deteriorating for some time. Hence, the continual earnings misses. Intel is much more susceptible to volume shifts than it has been in a decade. Most analysts give lower multiples to debt-laden companies for this reason. few tech analysts have any clue on cyclical industries and why they get lower multiples. thus they have and continue to miss the point that intel with much higher operating leverage (hidden in its COGS) is a more cyclical company than ever before and where it is in cycle deserves much lower multiple!
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