Monday, April 15, 2013

Crushed Between Clouds and Insects

An article in the New York Times today suggests that Intel, which got about 84 percent of its revenues in 2012 from PCs and the more muscular servers, has now joined the ranks of major computer companies upset by the maturing of the PC industry (“Intel Looks Past PCs for Foothold”). PC sales have been declining of late; the economy is sluggish, hence corporations and institutions, the major users of that tool, are not investing. But Cloud Computing is on the rise. Cloud computing? The phrase refers to the use distant servers, owned by others, to store an institution’s or enterprises total data “in a cloud.” Cloud servers are simpler and have fewer features than those used by corporations to perform broader computing services, along with file serving, in-house. Therefore they are less profitable. Intel, apparently, finds itself crushed between clouds above and insects (read smartphones and tablets and pads) below; these latter, according to the Times story, rarely incorporate Intel processors.

Why this need to “look past PCs”? The only explanation I can find is pressure on Intel’s stock. The company is magnificently profitable. In the 2007-2012 period, the company’s net income in the worst year, 2009, was 12.4 percent of its net revenues. In 2007 it was 18.2, inn 2012 it was 20.6 percent. This is a company with 53.3 billion in sales (2012) which has grown at a compounded annual rate of 6.8 percent a year 2007 through 2012. There is nothing wrong here except for the bloody market, and I mean the stock market. The market cannot stand a maturing industry. The lady may be but 43 years of age, but as soon as she has shown the first few grey hairs, she is immediately labeled a crone—and we must now “look past” the lady. Here is a chart of Intel’s revenues, net income, and an index of its stock, with 2007 set at 100:

What, if anything is wrong here? Revenue and net income show the consequences of the Great Recession—and the sluggish nature of the recovery. But the stock has responded much more dramatically. And, to be sure, the people who run Intel are not in the computer chip business. They are in the stock market business. Never mind the fundamental value of a corporation that absolutely dominates a market, computing, by owning most of the market share of its most fundamental component, the central processing unit. The same madness also governs the pea-sized brains of almost all those who run publicly traded companies—even one like Food, which can only really grow as population does. That industry has ruined a basic, necessary, and “always will be present” industry by trying to squeeze growth from it by making more and more high-margin prepared foods with too much fat, salt, or sugar—or artificially formulated foods with less of those three than natural foods ought to have.

Ears that hear, eyes that see. But we are lead by the deaf and the blind.

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