Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

What’s Really Happening to the PC Industry?

Companies / Tech Stocks Apr 24, 2013 - 07:26 AM GMT

By: InvestmentContrarian

Companies

Sasha Cekerevac writes: As I have talked about many times before, investing in companies that can grow corporate profits over the long term is essential when it comes to becoming a successful investor. Sometimes, though, it does pay to be a contrarian and go against the herd.

One sector that has been hit hard lately is technology stocks. Technology stocks, especially those that build hardware for personal computers (PCs), have seen corporate profits erode substantially over the past decade.


After a shift by consumers toward tablets and smartphones, the technology stocks that have not been able to adapt to these new product forms have seen a gradual but significant drop in corporate profits. The question to ask: is a turnaround possible?

The latest data indicate that technology stocks in the PC sector will face significant headwinds. For the first quarter of 2013, global PC shipments declined 13.9% compared to the same quarter in 2012, according to research firm International Data Corporation (IDC). (Source: “PC Shipments Post the Steepest Decline Ever in a Single Quarter, According to IDC,” International Data Corporation web site, April 10, 2013, last accessed April 19, 2013.)

This is the worst drop year-over-year for PCs since IDC began tracking the market in 1994. This is also not an aberration, since the market has now witnessed four consecutive quarters of declines.

However, since technology stocks in the PC sector have sold off dramatically, is it possible that these stocks now offer a value trade? The recent takeover attempt on Dell Inc. (NASDAQ/DELL) might shed light on this question.

There have been several interested parties looking to take Dell private. However, recent news that The Blackstone Group L.P. (NYSE/BX) has decided not to participate in any takeover of Dell is certainly worrisome. (Source: Terlep, S., et al., “Blackstone Ends Pursuit of Dell,” Wall Street Journal, April 18, 2013.)

As I’ve previously written in these pages, Blackstone is an extremely well-run company with highly intelligent analysts and managers. If the company doesn’t see any value at such low levels for Dell, this could weaken any argument for other technology stocks in the PC sector.

We all know that corporate profits continue to erode for PC-related technology stocks; now with Blackstone pulling out of this deal, I would be cautious in thinking that these firms offer any long-term value.

One of the old-school technology stocks in the PC segment that is trying to make a change is Hewlett-Packard Company (NYSE/HPQ). The company just had a substantial shake-up of its Board of Directors, and the firm itself is trying to move away from traditional PCs and into services and servers.

Hewlett-Packard (HP) is essentially trying to move into the domain of International Business Machines Corporation (NYSE/IBM). However, both the server and the service sectors are highly competitive, and I don’t see the potential for HP to grow corporate profits at a fast pace over the next few years.

Unfortunately, I believe technology stocks that are either primarily PC-based or are moving into a highly competitive market such as servers will find it difficult to grow corporate profits.

Differentiation is crucial for generating corporate profits. If a market becomes commoditized, then the lowest-cost producer can gain market share; however, this will be at a lower margin level, meaning the produce will need higher overall revenue to generate any corporate profits.

At this moment, I would avoid hardware makers when considering technology stocks. We are getting to the point that most hardware is so similar that a company cannot justify charging consumers a larger premium in pricing. This makes generating corporate profits that much more difficult.

Over the long term, the one company that continues to gain market share when considering technology stocks is on the software side, and that is Google Inc. (NASDAQ/GOOG). The stock has been quite strong, so I would wait for a pullback; but I think that over the next decade, Google will be hard to beat and will continue to drive corporate profits in comparison to other technology stocks.

Source: http://www.investmentcontrarians.com/stock-market/whats-really-happening-to-the-pc-industry/1891/

By Sasha Cekerevac, BA
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

About Author: Sasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what to look for as an investor. His newsletters provide an experienced perspective on what the big funds are planning and how you can profit from it. He is the editor of several of Lombardi’s popular financial newsletters, including Payload Stocks and Pump & Dump Alert. See Sasha Cekerevac Article Archives

Copyright © 2013 Investment Contrarians - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Investment Contrarians Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in