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Revenue matters, but the valuation is driven by the amount of profit. Margin in the server business must be very low (5%) and hence the valuation is a multiple
by mnglkhn2 13y ago
Revenue matters, but the valuation is driven by the amount of profit. Margin in the server business must be very low (5%) and hence the valuation is a multiple of profit and not revenue.
- johnward 13y agoI'm sure the profit margin is low for IBM but will be workable for lenovo, but startup valuations are based on rainbows and unicorns.
- lsc 13y agodo you have a source for the 5% number? I mean, I agree that x86 servers are a low-margin business, but 5% is lower than I'd expect.
- mnglkhn2 13y agoI should have qualified that number right from the beginning as a back-of-the envelope estimation: If we assume a 10x multiple to profit and a 5bn revenue, it results in 5.4% margin. If we just say it was a 8x multiple, then it is 6.75% It goes to 7.7% margin if we make the multiple to be 7x