A new metric for Wall Street is Return on Assets. A company spends money on infrastructure, equipment, etc. (Assets) to produce goods or deliver service. Recently, I have been reading where the return on assets is decreasing sharply (and has been for some time).
Let's take an Intel example. The 286 lasted from 1982 to 1985. The 386 was around from 1985 to 1989, when the 486 was introduced. Now, Intel is putting out new chips every year or so. Intel went from getting 3 to 4 years out of a factory before re-tool to about 18 months. Moore's Law says it will change that fast. But that means that Intel went from getting 3 years of ROA to 18 months or less.
In the cellular game, think about 2G to 2.5G - it was longer than 2.5G to 3G, which was even shorter in interval before we started talking and building 4G. The ROA on 2G was much better than on 3G.
Think about the return on assets of the Class 5 DMS switch. The ROA from Cisco boxes is much less. The ROA from softswitches will be different too.
The ROA of a Rohm desk phone was much higher than what it will be from any IP Phone. It's changing to fast. The same can be said of cellular handsets. Look how fast the iPhone is changing. That requires factory retooling, R&D, marketing, etc.
In the money game, the return on assets for banks and consumers has shrunk. Consider all the mortgage re-financing, foreclosures, short-sales, credit card debt, bankruptcies and no savings. And the percentage rate for banking forms to borrow money is almost free. But the ROA is very low.
With mounting debt and decling ROA in the midst of a triple-play price war, what does the future look like for telecom companies?
Just some late night mumblings from someone that is no financial wizard. Just been reading a little Michael Lewis.