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/.

Qualcomm On the Rise, Intel On the Decline

The latest quarterly earnings statement from Qualcomm (Nasdaq: QCOM) blew away most estimates. This resulted in the company's stock actually briefly surpassing the market valuation of long-time chip champion, Intel (Nasdaq: INTC). This is not a blip. There are reasons why investors should expect this to be the continuation of a long-term trend where Qualcomm outperforms Intel.

Qualcomm had such a good quarter because it is largest seller of semiconductors for mobile phones, including the iPhone 5 from Apple (Nasdaq: AAPL) and the latest offerings from Samsung like the Galaxy S III. It is also a big player in chips for tablets. The majority of the company's revenues comes from baseband chips, which connect phones to cellular networks. These chips are sold to firms like Apple and Samsung.

Mike Burton, an analyst at Brean Capital LLC, said “Qualcomm has absolutely been one of the prime beneficiaries in smartphones and tablets.” Meanwhile, Intel is a laggard in the market for mobile phone chips and is being hurt by the steady decline in demand for PCs. PC shipments are headed for their first annual decline in 11 years this year, according to research firm IHS iSuppli.

Qualcomm's chips are based on designs from Intel's adversary, U.K.-based Arm Holdings PLC ADR (Nasdaq: ARMH). Arm designs chips that use much less power than Intel chips while still being powerful. In fact, Bloomberg has reported that Apple is even considering dumping Intel's chips from use in its MAC computers in favor of Arm-designed chips.

Clear Sailing in 2013

More good news for Qualcomm shareholders is the fact that the company forecast continued strong demand for its chips in the current quarter. Qualcomm pointed to factors such as fast-growing demand for smartphones among emerging market consumers. Qualcomm's CEO Paul Jacobs told the Financial Times “Smartphones in China are really strong right now and cell phones are staples, not luxury items any more.”

Despite a bit of a slowdown in the sales growth rate in the third quarter, the future is bright for smartphones. Research firm NPD Display Search says that 567 million smartphones will be shipped this year and that number will surpass 1 billion in 2016.

Qualcomm is not sitting on its laurels either. It is aggressively expanding into the market for application processors. These are the chips that run programs in smartphones and tablets. For example, the company will be supplying its Snapdragon product to computer makers using the new version of the Windows operating system, Windows 8, from Microsoft (Nasdaq: MSFT). Snapdragon is also the sole supplier being used by every manufacturer of Windows smartphones.

The Years Ahead

This move into application processors is not surprising. Qualcomm was quick to enter the mobile phone market too. Its president Steve Mollenkopf told the Financial Times “We saw that mobile was going to be the key market to be in some time ago and we invested in key technologies much earlier than everybody else.” Particularly Intel, which is still talking about a golden age for PCs.

In the years ahead, if current trends continue, Qualcomm will be a more valuable company than Intel.

Look at the past decade. Intel's valuation peaked at $502 billion in 2000 during the internet bubble. Its shares have fallen about 15% this year alone and about 14% over the past 10 years. Meanwhile, shares of Qualcomm have jumped about 255% over the past decade and are up roughly 8% this year.

The next decade will likely show an ever growing gap between the two companies fortunes.

This article was originally published on the Motley Fool Blog Network. Be sure to read all of my articles for the Motley Foll at http://beta.fool.com/tdalmoe/.

Augmented Reality: The Coming Reality

Once existing only in the realm of science fiction, augmented reality is becoming . . . a reality. It is making its way into popular media as apps for smartphones, like the iPhone, and tablet PCs begin using augmented reality to overlay contextual graphics and other information onto real-life images and objects using these devices in an interactive fashion.

The industry was rather tiny and was really just a collection of smartphone apps which generated only a few million dollars in revenues in 2010. But now, by reaching out to the media and advertising companies, the augmented reality industry is on the verge of becoming a real business and estimated to be worth perhaps $600 billion by 2016. Semiconductor research firm Semico Research say that more than 864 million mobile devices will be equipped with augmented reality by 2014 and more than 103 million vehicles could have some form of the technology embedded in them by 2020.

Investors can see that the industry is for real by the number of large companies which have moved into the sector. Take Intel (Nasdaq: INTC), for example. It has invested $14 million into a Dutch company, Layar, through its venture capital arm. Layar has the world's most used consumer augmented reality application, a reality browser that helps find services nearby on anything from restaurants to real estate to networking opportunities. Its app has been downloaded more than 20 million times, has 3 million active users and is actually making money.

Intel is also looking to add augmented reality features to its chips, as have some of its competitors including Qualcomm (Nasdaq: QCOM). The company's Vuforia platform allows developers to plug augmented reality into their applications. Its latest version of Vuforia now has cloud recognition. So now when you hold your device's camera over an image, it connects to the web and rifles through a database of more than one million images.

This week saw news from Europe on this front too with mobile telecommunications giant Telefonica S.A. ADR (NYSE: TEF) selecting Aurisma and its technology as its partner to expand its mobile advertising worldwide. Aurisma is the augmented reality business now owned by Hewlett Packard (NYSE: HPQ) after its acquisition of British firm Autonomy. Telefonica will use Aurisma technology across its operations in 25 countries (and 300 million consumers), starting with the United Kingdom. Financial terms were not disclosed but it is believed that this is the biggest-ever deal between a telecoms company and an augmented reality company.

Telefonica believes that augmented reality may be the solution to the main problem that mobile advertisers face . . . users are less tolerant of traditional internet-style ads on their smart devices. This fact has held back the sector with mobile advertising accounting for less than 1 percent of total advertising spending in the United States. Telefonica plans to build the technology into its mobile advertising platform, alongside location-based advertising services and mobile coupons.

Google (Nasdaq: GOOG) and Amazon.com are also investing in their own in-house augmented reality projects, but they are considered long shots in this industry. Google's project, for instance, is called Project Glass and its goal is to develop a head-mounted display which would allow the hands-free displaying of information currently available to owners of smart devices and also interaction with the internet through voice commands.

The tentative leader for now in augmented reality seem to be Hewlett Packard with Aurisma and its TEF deal, but it is still very early days with lots of start-ups in the sector which could surprise.   This article originally appeared on the Motley Fool Blog Network. Make sure to read all of my articles for the Motley Fool at http://beta.fool.com/tdalmoe/

ASML and the Next Generation of Chips

One of the companies that is often pointed to in the technology sector as a bellwether as the world's top chip equipment maker is the Dutch company, ASML Holding NV ADR (Nasdaq: ASML). It not long ago gave a rather upbeat forward assessment of its business (thanks to smartphones and tablets) and now more good news is flowing for ASML shareholders.

The world's biggest semiconductor manufacturer Intel (Nasdaq: INTC), and one of ASML's largest customers, agreed to invest $4.1 billion into the company. Intel is putting $1 billion towards ASML's research and development costs as well as buying a 15 percent stake in the company for $3.1 billion.

Intel's major investment into ASML may soon be followed up by other sizable investments from other of the company's major customers. These customers include Taiwan Semiconductor Manufacturing ADR (NYSE: TSM) and Korea's Samsung Electronics Co. Ltd. (NASDAQOTH: SSNLF.PK). It has been reported that ASML has asked its three biggest customers, accounting for 41 percent of its revenues, to help fund its R&D in exchange for up to 25 percent of the company.

Why would these three semiconductor companies be so anxious to help out ASML? Because they are very concerned about maintaining the progress in chip miniaturization over the coming years.

In particular, the money from Intel, Samsung and TSM will help ASML accelerate the development of the next step beyond laser technology, extreme-ultraviolet (EUV) lithography. This is a new process that is seen as key to producing smaller chips. It requires a vacuum inside the machine and mirrors instead of lenses to focus the light on the silicon. ASML is seen as the leader in the field and it believes that the new technology will be able to be used for mass production of chips below 20 nanometers beginning in early 2013. The research money should allow it to break the 10 nanometer barrier later this decade.

In addition, the money injections will be used to help with the development of equipment that can handle larger-sized circular wafers from which chips are cut. The next generation 450 millimeter diameter wafers will contain roughly double the amount of chips as existing 300 millimeter wafers. Development of this technology should result in cost savings for chip makers of 30-40 percent.

From ASML's viewpoint, these investments will be key to it remaining number one in semiconductor equipment and ahead of its Japanese rival Nikon Corporation ADR (NASDAQOTH: NINOY.PK). That company is also working on EUV lithography technology and has ASML a bit worried. But the good news here is that it is believed Nikon is at least two years behind ASML in developing EUV technology with its version of EUV technology not coming onstream until at least 2015. And this cash injection by Intel and the other major chip makers into ASML is sure to put Nikon even more behind the proverbial eight ball.

This development and advancement in chip manufacturing technology bodes well long-term for users of tech gadgets such as smartphones and tablets too since production costs for such gadgets will be much lower. Nomura's global technology specialist, Richard Windsor, even told Reuters that “We're talking about $50 tablets”.

But the real winner here is ASML and its shareholders as it has basically cemented its place as the number one semiconductor equipment for the next decade.

This article was originally written for the Motley Fool Blog Network. Don't miss my daily articles for the Motley Fool at http://blogs.foool.com/tdalmoe/.

The End of the PC Era?

The CEO of chip giant Intel (Nasdaq: INTC), Paul Otellini, recently stated that “there's a golden age ahead of us [Intel]”. He made this statement based on his belief that the age of “cannibalization” of PCs – consumers choosing tablets over laptops – would be replaced by age of “reverse cannibalization” as new Windows 8 laptops come out with touchscreens later this year. Windows is, of course, the new operating system soon to be brought out by Microsoft (Nasdaq: MSFT).

Intel and Microsoft are not the only companies hoping Windows 8 is a runaway success. Others in the PC world need it to be a success in order to turn their fortunes around.

Take Dell Computer (Nasdaq: DELL) for one. Its stock recently fell by a fifth in one day on the back of poor results. According to its chief financial officer, Brian Gladden, the PC market has turned into a low-growth ghetto. And this past week Hewlett Packard (NYSE: HPQ) took a $1.2 billion write-off on its decade-old acquisition, Compaq Computer. Its CEO, Meg Whitman came right out and said “We are betting heavily on Windows 8”.

These companies are facing a steep uphill climb against the competition - smartphones and tablet computers. Smartphone sales exceeded PC sales for the first time ever last year, with 427 million sold versus 353 million PCs sold. According to technology research firm Gartner, smartphone sales will be twice as big by 2013. Tablets, led by the iPad from Apple (Nasdaq: AAPL), looks like the next device which will capture a global mass market, with some in the industry predicting sales could rival those of PCs within three years.

As a whole, the number of “smart” devices sold annually will double between now and 2016, reaching 1.84 billion according to research firm IDC. In that period, traditional PCs are forecast to shrink from 36 percent to 25 percent of the total number of smartphones, tablets and PCs. Hardly a golden age.

Part of the decline is due to shifting consumer tastes. The emergence of web-based services has made software applications less relevant to consumers. For example, music lovers today are much more likely to turn to streaming service such as the iCloud where there favorite tunes are stored on Apple servers. The same can be said with regard to personal data too.

Intel and others are banking on consumer acceptance of hybrid PCs (which Apple thinks will never be viable) thanks to Windows 8. But these type of devices failed miserably in the past. Take Dell's Inspiron Duo which was launched to much hype in 2010. Consumers thought it was too heavy, the screen and battery life were poor and it did not even come close to the touchscreen experience of the iPad.

Windows 8, however, does seem to be the best offering from Microsoft since Windows 95. It will have an user interface, called Metro Style, that is based on colored tiles operated by touch and which is currently being used on Windows phones. Microsoft is also using a programming model that enables developers to create apps easily and computing architecture and operating system that will run tablets. The architecture is required for devices that run low-powered chips (which expands battery life) designed by the UK's Arm Holdings.

Microsoft's Windows 8 should give PC companies an opening to pull customers back into the PC universe. But that window may close rather quickly, leaving others like Samsung and Apple to further gain market share.
 
This article was originally written for the Motley Fool Blog Network. Make sure to read of my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.

Intel and Arm Holdings Jockey for Position

Semiconductor giant Intel (Nasdaq: INTC) recently forecast that its second quarter revenues would come in ahead of Wall Street expectations at $13.6 billion. The company's optimism is due to the fact that new products would be launched in this quarter which would feature its new processors, including Intel's first to appear in smartphones.

In effect, Intel is betting on a combination of good sales results this year from new markets (smartphones and tablets) for Intel along with the launch of the new Windows 8 operating system from Microsoft (Nasdaq: MSFT), creating excitement in the mature market of PCs where it dominates. But in both areas, Intel will be going head-to-head against chips designed by the UK firm, ARM Holdings PLC ADR (Nasdaq: ARMH). Intel chips have traditionally been faster than Arm chips but are power guzzlers when compared to battery-saving Arm processors.

Windows 8 will be the first operating system from Microsoft that will be compatible with Arm-designed processors. Microsoft expects that factor to help increase sales of Windows 8 markedly. Intel is coming out with its third generation of Core microprocessors, called Ivy Bridge, with which it intends to defend its territory from competitors who will be using manufacturing Arm-designed chips for PCs. Circuit widths in these Intel microprocessors are shrunk from 32 to 22 nanometers (billionths of a meter), offering improved performance.

But perhaps the most interesting part of this growing conflict between Intel and Arm will be to see how well Intel does in areas where Arm is currently dominant, like smartphones and tablet computers. Intel has launched a major advertising campaign aimed at promoting its Ultrabook concept of thin, light laptop computers (as opposed to Apple's MacBook Air) and has plans to supply chips for the tablet computer market soon.

Smartphones are developing into an even more competitive segment. Just this week, the first smartphone powered by Intel-designed Atom microprocessors went on sale. The Xolo X900, from little-known Lava, went on sale in India for $423. The new phone has a single-core 32 nanometer Atom processor now, but a double-core 22 nanometer Atom processor will replace it later this year.

That won't do much for Intel, but the good news is that major companies including Lenovo Group Ltd. ADR (OTC: LNVGY) and Motorola Mobility Holdings (NYSE: MMI) have plans to come out with Intel-based smartphones soon. However, the Lenovo Android phone – the K800 – will only be available in China, so Motorola will be the key partner for Intel's global hopes for its latest version of its Atom processor, Medfield. In January, Motorola did announce a multi-year, multi-device partnership with Intel for Atom-powered phones would kick off this summer.

Intel does have an opening against Arm-based chips, at least temporarily. Rivals like Qualcomm (Nasdaq: QCOM) generally rely on Asian foundries like Taiwan Semiconductor to manufacture their chips. Qualcomm did recently warn that it was having trouble getting enough 28 nanometer chips from its partners in Asia.

Over the long term, one key for success may lie in Intel's ability to shrink its chips further. According to analysts at the research firm ISI Group, sometime at the end of 2013 Intel should be manufacturing 14 nanometer microprocessors for smartphones, giving it a distinct advantage. It remains to be seen if this advantage pans out. After all, ARM will not be sitting by idly.
 
This article was originally written for the Motley Fool Blog Network. Make sure to read all my daily article for the Motley Fool at http://blogs.fool.com/tdalmoe/.