Comment by PhantomGremlin | Hacker News Reader

Comment by PhantomGremlin | Hacker News Reader

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I think Intel's "strategic motivation" is simple. The US stock market demands ever increasing revenues and earnings from a company. In order to achieve that, often companies do something that the great Peter Lynch called "diworsification" [0]:

   The term was coined by legendary investor Peter Lynch in his book, "One Up Wall Street," where he suggested that a business that diversifies too widely, risks destroying their original business, because management time, energy and resources are diverted from the original investment.

Without continuing earnings and revenue growth, a company is "dead" to much of Wall Street.

I just posted another comment as to what IMO Intel should be doing instead. They should "stick to the knitting". E.g. they could try to become a world class foundry. They've got the fabs, they've got thousands of great engineers. I guess that's just not as sexy as a watch that also measures your perspiration.

[0] http://www.investopedia.com/terms/d/diworsification.asp

It's a shame that the one time event of going public dooms a company for perpetuity to being subject to the unreasonable demands of shareholders, so often ironically resulting in the downfall of the very value that was supposed to rise as a result of said demands.

It's even more ironic that companies which make astounding profits (cf Apple) and largely ignore the whims of shareholders (cf Apple) are constantly berated for this.

The alternative to diworsification would be share buybacks. That's a way to increase your EPS without having to grow your earnings numbers.

Intel's diversification probably has more to do with internalization of the mantra "if you're not growing, you're dying" than pressure from Wall Street.

I'm in favor of diversification but not diworsification. E.g. when Apple already makes an iPod and an iPhone then it's smart diversification to make an iPad. That gets you growth without needing to resort to share buybacks.

Apple's smart growth is much better than the flailing growth that many companies attempt. E.g. Google has search so Microsoft does Bing. Apple has the iPod so Microsoft does the Zune.

New products are OK if they are clearly better than what is already out there, but in Microsoft's case they weren't. Contrast with the iPhone. It was IMO clearly better than what was already out there, if for no other reason than Apple refused to be the wireless carriers' bitch.

But now even Apple is doing share buybacks, because they're running out of smart diversification ideas. An iWatch wouldn't be big enough to provide meaningful growth. I'm sure they'll eventually do it, but the law of large numbers is no longer on Apple's side.

The example I gave of me wanting Intel to become a world class foundry is IMO smart diversification. TSM's market cap is about $93 billion. So, clearly, there's room for competition.

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