A lot can happen in a year, or even a few months. Just as some of last year’s biggest fads become today’s discount merchandise, we oftentimes see the same thing on Wall Street. Take 2012, which was the unofficial “Year of the Tablet”—analysts expect that some 120 million tablets were sold last year. Of course, the tablet boom drew sales away from traditional hardware and software companies, so some of tech biggest names saw their profit margins dwindle and institutional buying pressure plummet.
With estimates calling for at least 170 million tablets sold this year, will 2013 bring the slow and painful death of the PC market? Let’s take a closer look.
Dell Inc. (DELL) is best known for selling made-to-order desktop and notebook computers to consumers, but what’s really interesting is the company’s transformation into focusing on its corporate and business divisions. Dell isn’t walking away entirely from the consumer side of the computer market, but the company has put a lot more emphasis on ramping up its corporate businesses and services.
Taking the Plunge: Dell used to rule the consumer PC industry, but its status has fallen dramatically in recent years. Similarly, 2012 was a rough year for this Conservative stock; last February, DELL received a B-rating. Since then, buying pressure has plummeted, leaving DELL with an F-rating for its Quantitative Grade. That above all else keeps it in sell territory. On the fundamentals side, Dell Inc. needs work, especially in terms of sales growth, operating margin growth and its track record of beating earnings estimates. Somehow, Dell is doing well in terms of its cash flow and return on equity, but the company still receives a C for its Fundamental Grade.
Looking Ahead: For 2013, analysts expect Dell to post a 9% drop in sales and a 20% drop in earnings—compared with the 3.8% average for the rest of the Personal Computers industry. So despite the company’s efforts to evolve, it looks like more of the same for Dell. Perhaps now is a good time for Michael Dell to take his company private to escape Wall Street scrutiny.
From microprocessors to motherboards to flash memory, Intel Corp. (INTC) has a hand in many of the components found in today’s PCs. However, lately the personal computer, and all companies involved in production, has been threatened by the advent of smartphones and tablets. Intel currently brings in over $50 billion in sales each year but there’s no guarantee Intel can keep up this sales pace.
Taking the Plunge: While INTC started 2012 on a high note, this stock has been in a downward spiral since September, when buying pressure fell off a cliff and sent INTC down from a B-rated buy to a D-rated sell. By December, it fell to an F-rating and hasn’t budged since. What’s really keeping INTC down in sell territory is its buying pressure, as shown by its F-rated Quantitative Grade. Meanwhile, the company still has some problems with its financials, especially sales growth and analyst earnings revisions. INTC receives a C for its Fundamental Grade.
Looking Ahead: When it comes to earnings growth, Intel is also expected to be in the red this year, with the consensus calling for a 9% drop in earnings. That’s slightly better than the 10% drop forecast for the rest of the semiconductor industry, but not by much.
F5 Networks Inc.‘s (FFIV) application delivery controllers and software programs help make networks run faster and more efficiently. This allows companies to conduct business over great distances. F5 also develops file virtualization, WAN optimization and remote access products that further help customers "decentralize" their businesses. Looking
Taking the Plunge: However, in the past year or so this stock has been beaten up after the company posted a series of lukewarm earnings reports. 2012 was a difficult time for F5 Network, with many of its clients struggling due to uncertain economic conditions, and the company remaining exposed to a handful of volatile markets. So over the past several months FFIV has fallen from a B-rated buy to a D-rated sell. As you can see, the main culprit is a drop-off in buying pressure, compounded by mixed fundamentals. While F5 Networks has been accelerating sales and cash flow, the company has a shaky track record of beating analyst earnings estimates and lukewarm earnings and operating margin growth.
Looking Ahead: But that very well could change this year. For 2013, the Street view is for 13% sales growth and 15% earnings growth. Still, FF5’s earnings aren’t expected to accelerate as quickly as the average application software company (23%), so I’m keeping my current sell recommendation for FFIV. After all, there are plenty of better buying opportunities out there.
Microsoft Inc. (MSFT) has been around since 1975, which is essentially the dawn of computer software. The company started as a basement operation with Paul Allen and Bill Gates selling simple computer programs for the Altair 8800 microcomputer. Only 10 years later, the company released the first retail version of Microsoft Windows, an Operating System that would ultimately become standard on most home PCs.
Taking the Plunge: While 2012 also seemed like a promising year for Microsoft, with the launch of Windows 8 and the new Surface tablet, MSFT ended the year as one of the worst-performing tech stocks. Starting in September, institutional pressure bottomed out as investors grew tired of Microsoft playing second fiddle to its competitors despite high levels of R&D spending.
Looking Ahead: While the analyst community forecasts double-digit sales and earnings growth this quarter, that is expected to peter out for the full year. The consensus estimate calls for 8% sales growth and just 4% earnings growth—less than a fifth of the industry average (23%). In any event, future investors may be spared disappointment because there are now rumors that Microsoft will follow in Dell’s footsteps and go private sometime this year as well.