What is a company worth? Is it based on the money it has in the bank? On the manufacturing capacity? On the history of the company? If so then INTC would seem to be worth the huge multiple it currently has.
My own feelings are that while the above are important, they are largely rear view mirror things, and unless you’re in reverse they don't say much about where your going. Much more important is the innovation the company is demonstrating, the amount of fat in the company, and of paramount importance, what the management is like.
On all three of those standards INTC gets a big "F". I've already expressed my opinions about INTC management, or more correctly, lack there of. As far as innovation goes I've talked about that also, but I don't want to give the impression that the engineers are to fault. As I've said it's a management problem related to driving the company in the wrong directions. The third thing "FAT" is a little harder to quantify because if you compare INTC to AMD it looks like every INTC employee earns a lot more for INTC than AMD employees do for AMD. But that statistic is skewed because size is very important in the games AMD/INTC play. There's a large fixed ante needed just to play and costs don't increase proportionally with sales.
Even with the huge cost advantage INTC has it's very telling that INTC needs an ASP something like 1.5 times AMD's ASP to be profitable. At $100 ASP AMD would be in pig heaven(especially at 90nm) while INTC probably will need $130 even when they eventually ramp their 90nm process on 300mm wafers.
So far I've been talking about processors, since that's the only thing INTC makes that is profitable. INTC manufactures a whole load of other products that PC's must carry. INTC has been dropping tons of money into all sorts of ventures for a very long time in an attempt to diversify, rather unsuccessfully. The success of the latest investment, LCOS rear projection HDS TV's, won't be known for some time but the SB analyst doesn't think much of it.
Anyway, the point is that INTC is totally dependent on a high ASP for its' processors(servers/portables mostly) to keep the company afloat. With AMD starting to make noticeable inroads in those markets due to non-competitive products and manufacturing problems at INTC, INTC must lower prices. The trouble is that INTC can't lower prices since they have so much of the market,. To do so would really hit the bottom line. Further, AMD has succeeded in doing what INTC marketing has wanted INTC to do namely differentiated their product to the point where comparisons with INTC products aren't meaningful. The only place where INTC competes successfully is in the mobile segment. In other areas the AMD advantage varies from little to huge amounts(servers).
As far as I can tell the only thing keeping INTC afloat is the current computer market rebound. Should that start to taper off all those shiny new fabs are going to have problems staying busy(actually I think they are already having problems, but who knows?). So far INTC has been able to maintain profitability by substituting volume for ASP's. I really have my doubts though about INTC's ability to maintain their rosy margins projections.
In the final analysis, right now I think INTC is a much riskier investment than AMD, and that situation isn't likely to change any time soon.
