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ARM Holdings has become a darling of the markets, boasting a 72.6x P/E. Frighteningly, even if ARM quadruples its earnings this quarter and maintains that level, it would take 18.15 years to return the earnings which would justify its P/E. While the market for smartphones and tablets is burgeoning, I do think that Intel will manage to break into the market with its vast resources and perhaps take over. At the very least, the price of this stock will have to come back down. I would much rather gamble on Intel then on ARM, though I'm slightly bearish on its prospects as well.
Great post, my thoughts exactly. Way too expensive, and with the amount of money INTC spends on R&D, it's only a matter of time before they take over the mobile space.
Thanks for the reply. Yes, what is the statistic? Intel spends more on R&D in 1 quarter than ARM would spend in 15 years, I think. So ARM's valuation appears to be justified only by the absolute best case scenario where tablets/smartphones explode and neither Intel nor anyone else takes any market share (and throw in that ARM gets into PCs as well). But of course, as Phil Fisher said in one of his books, that assumes the company spends well on research and doesn't switch projects every few years. Intel needs to show commitment to smartphones and tablets. I think that if Intel plans to move into tablets, Nvidia Tegra using ARM is a more dangerous competitor than the ARM solutions for smartphones. I am increasingly optimistic about Intel's prospects.
Intel spends roughly ARM's market cap on R+D and capital investment annually. Agree with the excellent original pitch.
not an outright rejection of what you say but a few points
Intel's chip design teams are quiet small so being smaller is no handicap to ARM, teams have to be small as the teams have to collaborate
A lot of Intel's R&D goes on manufacturing silicon not designing it so it's not an apples to apples comparison
As ARM licence designs instead of manufacturing them their margins will naturally be higher so it justifies a premium to Intel's P/E , I'm not sure how much though.
Intel's success here is not a given, they larger failed on discrete graphics and ceded the market to Nvidia and AMD / ATI
Thanks for the reply. Certainly those are great points to consider regarding Intel and ARM. I don't think either is a can't miss investment, Intel because of the strategic mistakes they've made and their new smartphone endeavors plus the potential loss of Wintel, while I personally think ARM's P/E is too high and there is uncertainty regarding how well they can fend off Intel.