Tuesday, February 12, 2013

PC Era Continues to Fade

The PC era seems to be drawing to a close. The once dominating force in the technology sector – Wintel – is not what is used to be. The two companies involved, Microsoft (Nasdaq: MSFT) and Intel (Nasdaq: INTC), continue to search for a new path for success in the rapidly-expanding smartphone and tablet era.

Take Intel, for example. The company's most recent earnings report showed profits fell 15 percent as revenues and profit margins dropped in 2012, thanks largely to declining sales in its core PC market. Intel has its processors in only a mere 10 tablet and seven smartphone models.

Of course, Intel and Microsoft are not alone in trying to adjust to the new realities. The fortunes of PC makers Dell (Nasdaq: DELL) and Hewlett-Packard (NYSE: HPQ) have also declined quite rapidly. HP is desperately trying to maintain its number one position over rival Lenovo by cutting prices and sacrificing its profit margin. . .not a long-term winning strategy.

Dell's best hope seems to be a leveraged buyout by private equity firm Silver Lake Partners, which specializes in saving 'dying' firms. The buyout makes sense for Dell because the decline in the PC market looks set to continue to the years ahead.

PC Decline to Continue

The headwinds is the industry is facing was borne out by data from both Gartner and IDC Research this month that showed PC shipments declined in the fourth quarter of 2012, 4.9% and 6.4% respectively.

Both research firms blamed the failure of Microsoft's Windows 8 to ignite the market and consumers' growing preference from lower-cost tablets. An analyst at Gartner, Mikako Kitagawa, told the Financial Times “Tablets have dramatically changed the device landscape for PCs, not so much by cannibalizing PC sales, but by causing PC users to shift consumption to tablets rather than replacing older PCs.”

The decline of the industry caught the eye of the Fitch Ratings agency. Fitch warned that revenues in the PC sector in particular would decline again in 2013. It said, “2013 marks an important year for the industry. . .[it] is especially critical for Microsoft, Dell, HP and Intel, all of which have been limited participants in faster growing products over the last two years.”

Stodgy Dividend Companies

Over the last few years, companies in this once vibrant sector seemed to have turned into stodgy old dividend-paying companies. They are now like the 'old economy' companies they once made fun of.

Just look at how their yields have risen since Apple first launched the iPad at the beginning of 2010.

Microsoft's dividend yield doubled to 3.5%. Intel's yield rose over 40% in the same time frame to 4.4%. The dividend yields for both Dell and Hewlett-Packard are above 3%.

Bear in mind that during this same time frame, the yield on the 10-year U.S. fell by half to 1.9%.

With smartphones, iPads and Android phones continuing to erode away market share from the PC industry, these yields may climb even more.

That's something tech investors would have thought impossible a few years ago. It's also something for Apple investors to chew on. In the tech space, no one stays on top forever.
This article originally appeared on the Motley Fool Blog Network. Please read all of my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.

1 comment:

  1. It looks as if things are going somewhat in reverse. The desk top was Invented for the office not the home or i should say for the most part. Now its the phone thats become the computer. Office workers will still have a desktop.