Intel's ability to do more with less is cheering investors.
The chipmaker this afternoon released a third-quarter earnings report that beat analyst expectations, and the stock jumped 4.2 percent in after-hours trading.
Intel said in the earnings release that business spending on personal computers remained weak during the third quarter, and the company doesn't expect it to pick up until next year. Consumer spending on PCs has improved, however, and the firm bumped up guidance for the fourth quarter.
As this Guru Focus data show, Intel's performance improved greatly over the second quarter though it lagged the year-ago period.
But take a closer look at the difference between the second and third quarters and you'll see that much of the improvement is due to improved efficiency rather than sales gains. Revenue was up $1.4 billion and operating income was up $2.6 billion. The $1.2 billion difference likely came in part from the dramatic cost cuts Intel announced earlier this year, including thousands of jobs lost.
Intel's ability to do more with less is great for investors. And frankly if the company can get the same job done with fewer people and plants, more power to them. Anyone who has worked in an office knows that there are almost always more people employed than are really needed to get the job done if everyone exerts maximum effort.
Intel is far from the only company doing more with less. Many people attribute the improved earnings reports over the past two quarters more to cost-cutting than revenue gains.
The broader question is what will happen when the economy recovers? Will the companies hire back those who have lost their jobs even after showing that results can be obtained without them? If they do, what will shareholders think?
But if they don't hire people back, isn't it possible that the country's unemployment rate could stay high for a long time, much longer than most economists are predicting? And what does that mean for consumer spending?
Improved efficiency is something that investors love. But Intel's report today makes you wonder whether many of the job losses are more permanent than many think. If a firm can do more with less, why hire more?
Disclosure: Long INTC
The chipmaker this afternoon released a third-quarter earnings report that beat analyst expectations, and the stock jumped 4.2 percent in after-hours trading.
Intel said in the earnings release that business spending on personal computers remained weak during the third quarter, and the company doesn't expect it to pick up until next year. Consumer spending on PCs has improved, however, and the firm bumped up guidance for the fourth quarter.
As this Guru Focus data show, Intel's performance improved greatly over the second quarter though it lagged the year-ago period.
But take a closer look at the difference between the second and third quarters and you'll see that much of the improvement is due to improved efficiency rather than sales gains. Revenue was up $1.4 billion and operating income was up $2.6 billion. The $1.2 billion difference likely came in part from the dramatic cost cuts Intel announced earlier this year, including thousands of jobs lost.
Intel's ability to do more with less is great for investors. And frankly if the company can get the same job done with fewer people and plants, more power to them. Anyone who has worked in an office knows that there are almost always more people employed than are really needed to get the job done if everyone exerts maximum effort.
Intel is far from the only company doing more with less. Many people attribute the improved earnings reports over the past two quarters more to cost-cutting than revenue gains.
The broader question is what will happen when the economy recovers? Will the companies hire back those who have lost their jobs even after showing that results can be obtained without them? If they do, what will shareholders think?
But if they don't hire people back, isn't it possible that the country's unemployment rate could stay high for a long time, much longer than most economists are predicting? And what does that mean for consumer spending?
Improved efficiency is something that investors love. But Intel's report today makes you wonder whether many of the job losses are more permanent than many think. If a firm can do more with less, why hire more?
Disclosure: Long INTC
