Jury,
re: Intel PE's vs. MSFT PE's.
"'But we will never see PE ratios like MSFT, who packages a large empty box around a CD-ROM and gets as large a margin as it likes.'"
"Is this logical? IMHO P/E is the relation between price (of the stock) and the part of company-earnings related to one share. I remember times when actually Intel's P/E was better than Microsoft's. No clue if this will happen again - but I hope so. If I'm wrong, my options (strike 120!)aren't worth 1 penny."
True. But high PE's reflect the potential (or even expectations) of higher earnings in the future. It seems to me that high profit margins will be required to increase future earnings once there is market dominance. Both INTC and MSFT have market dominance, but one is delivering a physical commodity whose cost is related to manufacturing and material costs, the other is delivering a product whose costs are intangibles, such as research and programming, which are highly variable, once market dominance (esp. monopoly) is achieved.
That's why I think that MSFT has more of an opportunity to continue to improve earnings, based on controllable costs and higher margins. I think INTC's margins are much more limited, and it's not going to gain market share (it already has almost all.) I think INTC will pick up again, and will get back in, but I would be surprised by 120 within the next 12 months.
Incidentally, one of RMBS great strengths is that it doesn't involve itself in the production of the commodity (chips) but only in the portion of the product which has the highest possible margin (the intellectual property.) This is a great long term strategy, I think. I do intend to get back in, and hope for a chance somewhere around 50.
Regards,
Marc
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