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Its going to be an interesting end-of-the-week for tech stocks now that both IBM (NYSE:IBM) and Intel (NASDAQ:INTC) have released their quarterly earnings reports. Neither one was very exciting for shareholders, as both reported double-digit declines in earnings.
IBM
IBM, which for the trivia minded, was born and raised in my hometown, reported a drop of 17%. In the Dow Jones press release, concern was expressed about how the shift to cloud computing is affecting IBM’s ability to maintain its earnings record. Many observers are expressing concern that IBM may be “on the wrong side of a major technology shift.” To those people I would say this: “Are you kidding me? This is a typewriter manufacturer!” I can remember when, in 1963, I got my first IBM Selectric® typewriter. Everyone was amazed at this wonderful technology that allowed us to type faster than we could have ever imagined. And it was electric! No one had ever heard of word processors, let alone personal computers.
IBM is the company that outsmarted Apple (NASDAQ:AAPL). Although Apple’s WYSIWYG was first to market, their strategy was to promote Apple desktop computers in schools so that, as students graduated and entered the workforce, they would insist on using Apple products on the job. The strategists at IBM realized something that the boys over at Apple forgot: It’s not the new employees that decide what equipment sits on their desk. It’s the boss. So IBM – whose motto, you may recall, is THINK – focused on promoting their hardware and operating system to the decision makers. They may have been behind as far as the more exciting software side of the business was concerned, but they not only had their foot in the door, they guarded the door. They managed to carve out and retain the vast majority of the institutional, governmental, and corporate pie.
I wouldn’t count IBM out just yet. Oh, I forget, for those of you born after 1985, a typewriter is a machine like your keyboard, but it prints directly to paper, so you didn’t need to buy a separate printer. And you thought that we were making progress.
According to the report, “IBM reported a profit of $3.23 billion, or $2.91 a share, down from $3.88 billion, or $3.34 a share, a year earlier.” IBM share price on the New York Stock Exchange was up 4.89 (2.51%) to $199.44 at mid-morning EDT. People must also realize that the earnings as reported were actually above projections.
INTEL
The Intel story is a bit different, at least as an operational entity. Its decline in earnings was a teeny bit more problematic at 29%. To give it some perspective, that is a 70% greater drop than what IBM reported.
Intel’s problem has not changed. Its chip technology has been primarily focused on the PC market. The investing community is well aware of that, as Intel is in a tooth-and-nail battle with ARM (LSE:ARM) and other smaller tech companies to stay at the leading edge of rapidly advancing chip use demands. The problem for Intel is that the shift is to chips for mobile devices which are replacing PCs at a rate faster than any average person could possibly have anticipated just a few years ago. As PC sales decline, so does the demand for Intel chips. Intel CFO, Stacy Smith, told CNBC yesterday that “We were a little slow to recognize the trend towards mobility.” No kidding. He added that Intel is “moving fast now.” That, by the way, is really more of a forward-looking statement for, as the BBC reported, citing this as the fourth straight quarter of declining sales for Intel, “The company is hoping to focus on selling its chips for use in tablets and smartphones as a way to compensate for this decline, but so far, this has not happened.”
Intel’s earnings dropped from $2.83 billion to $2 billion year-on-year. Its share price dropped by 0.80 (3.3%) to $23.34 in late morning trading.
In my opinion, it looks like IBM has a plan and that Intel is “THINK”ing about a plan. The Intel battle is not with IBM. It is with ARM. Frankly, I’d put my money on ARM.
