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/.

2013 Will Not Be a Good Year for E-Reader Makers

In the midst of a disappointing sales season for retailers, there have been several bright spots. One of those has to be the number of e-book readers that appeared under Christmas trees.

But the cheer is not expected to last throughout 2013. According to some technology analysts, this category of tech gadgets is expected to see a very rapid decline in its fortunes over the coming months thanks to competition from other devices.

Competition From Tablets

There are several well-known e-readers on the market including the Nook from Barnes & Noble (NYSE: BKS). Last April, the company announced a partnership with Microsoft (Nasdaq: MSFT) whereby Microsoft invested $300 million into its Nook unit. This investment is interesting in the light of Microsoft's move into tablets with Surface. 

There also a number of Asian manufacturers, but the best known of the e-readers are the various versions of the Kindle from Amazon.com (Nasdaq: AMZN). In the run-up to Christmas, the latest Kindles occupied three of the top 10 slots for electronics at Amazon's website.

But they were outsold by tablets, which occupied eight of the top 20 spots for electronics on Amazon's website.

Tablets are becoming more user friendly. . .lighter, cheaper and with longer battery life. Not to mention tablets are multifunctional. The Kindle and others are under direct fire from the mini-iPad from Apple (Nasdaq: AAPL) and the Nexus 7 from Google (Nasdaq: GOOG) that costs only $199.

It is this competition that has industry analysts so worried.

The Way of the Dinosaurs?

One worry wart is the research firm IHS iSuppli. It titled its recent report on the industry: Ebook Readers: Device to Go the Way of Dinosaurs?

According to iSuppli, total e-book readers shipments grew from a mere one million worldwide in 2008 to ten million in 2010. Shipments hit a peak of 23.2 million units in 2011. But even then, tablets had already taken the lead over e-readers with shipments of 67 million units.

In 2012, iSuppli has forecast that sales will fall 36% to just 14.9 million units. Another drastic 27% fall is forecast for 2014 when shipments decline to 10.9 million units. The firm sees sales of only 7.1 million units by 2016 as the consumer trend toward a multifunctional device – the tablet – continues.

Research firm Forrester is in agreement with iSuppli. It also believes that tablets will be become cheaper and cheaper while at the same time screens and battery life improves.

An analyst with Forrester, James McQuivey, believes e-reader prices and sales have only one direction to go. . .down. He told the Financial Times' Chris Nuttall, “Prices are falling so quickly that at some point Amazon's going to give you one for free to extend its customer relationship.”

Small Hope

As iSuppli points out in its report, it is an inexorable move from a single-use device to multifunctional devices. But it doesn't mean the complete end for e-readers. Think GPS devices and MP3 players.

There still may be some demand for the devices from one specific sector – the education industry in emerging markets.

With the growing popularity of the iPad and other tablets, it may too late to tap into the U.S. educational market in a big way. But it is a different story in the emerging world. But only if the e-reader makers grasp the opportunity quickly.

Jordan Selburn, an analyst with IHS, told the Financial Times “the future [for e-readers] is in emerging regions and in heavily subsidized opportunities.”

But in those markets, with incomes low, e-readers would have be very low-cost. Perhaps in the less than $20 range for end users. Some one (governments?) would have to subsidize the cost so e-reader manufacturers would make some profit.

So there is a bit of hope for e-reader manufacturers. But just not a lot of it.

 

This article originally appeared on the Motley Fool Blog Network. Make sure to read all of my articles for the Motkey Fool at http://beta.fool.com/tdalmoe/.

Gaming Console Landscape Changed Forever

During its first week on sale in the United States, Wii U from Nintendo ADR (NASDAQOTH: NTDOY) sold more than 400,000 units. This is far less than the original Wii, which sold 600,000 units in its first 8 days on sale. No wonder many Wall Street analysts said that the 400,000 figure was disappointing. But is it really? It may not be, because the video console gaming landscape has changed drastically in the last few years.

The introduction of the Wii U is obviously important to Nintendo. It is trying to revive its flagging sales. . .sales that led the company to report its first annual loss in five decades as a public company. Nintendo has been especially hurt by poor sales of its handheld 3DS gaming device.

The original Wii to date has sold approximately 97 million units, the best of its generation. Its competitors – the Xbox 360 from Microsoft (Nasdaq: MSFT) and the Playstation 3 from Sony ADR (NYSE: SNE) – have sold about 70 million units each to date.

The Wii U

Nintendo is hoping to get back its mojo with the Wii U and its GamePad controller that has a 6.2 inch touchscreen imbedded in it. This not only allows a different view of the game but also permits users to transfer, if they wish, a game on the TV to the controller. This allows a game to be played on just a handheld device.

The Wii U also offers HD-quality gaming as well as online gaming. This matches its rivals and should encourage games publishers including Activision to release some of the most popular games on the Wii U, such as Call of Duty: Black Ops 2. But so far, only games publisher Ubisoft seems willing to promote its game on Wii U. This may leave Wii U with a limited selection of games and not many of the best selling games.

Changed Gaming Landscape

The Wii U is also vitally important to the video console as a whole. This launch served as the introduction to the eighth generation of the traditional video game console. The previous cycle was kicked off seven years ago by Microsoft and its Xbox 360. The worry in the industry is that this may be the final generation of video game consoles.

These worries are centered around the fact that the gaming world is very different from the one that Microsoft launched the Xbox 360 into. Back then Facebook social gaming, smart TVs, smartphones and tablets from Apple and others were not a threat. But they are today.

As Piers Harding-Rolls, head of games at research company IHS Screen Digest, told the Financial Times “It's a much more competitive landscape. The question is whether Wii U. . .has enough selling points to elevate it to being a device that consumers will see themselves purchasing and engaging with on a daily basis?”

It is right to be concerned about the industry, but don't bury it yet.

Nintendo's Future

Despite all the concerns, Nintendo will have a rather successful launch of the Wii U. The company should still be able to hit its target of 5.5 million units sold by the end of its fiscal year in March 2013.

However, late next year will see fresh competition for the Wii U as both Sony and Microsoft come out with their new consoles. Sony's next game console will be the Playstation 4 or perhaps Playstation Orbis. Microsoft' offering will be the Xbox 720.

Early talk among analysts about the competition between the three consoles is that Microsoft's Xbox 720 will be the winner. Doug Creutz, analyst at Cowen & Company, told the Financial Times that Microsoft's superior media content and services will give it a clear edge.

But the question remains whether there will ever be a big “winner” again in the video game console industry in the true sense of the world.

This article originally appeared on the Motley Fool Blog Network. Please be sure to read all of my Motley Fool articles 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/.

Nokia May Be at the 'Last Chance Saloon'

The ills of the once dominant Finnish mobile phone maker Nokia ADR (NYSE: NOK) are many and, to some extent, getting worse. The company may be at 'The Last Chance Saloon.' The bartender is Steve Ballmer of Microsoft (Nasdaq: MSFT). He is pouring Nokia not the Finnish traditional 'long drink', but what he hopes is a nice, smooth and profitable drink of Windows 8 for smartphones.

Windows 8 had better be all that Microsoft has promised for Nokia's sake. It sold fewer of its flagship Lumia smartphones in the third quarter than Apple (Nasdaq: AAPL) did of its new iPhone 5 in its opening weekend!

Poor Sales and Market Share Trend Continues

Nokia's smartphone sales in the third quarter amounted to just 6.3 million units. There were 2.9 million Lumias sold in the quarter, down from 4 million the previous quarter. In the important U.S. market, sales amounted to a mere 300,000 smartphones. That is down about 50% from the previous quarter. In addition, revenues in China fell 80% year-on-year. Much of the blame lies with the fact that consumers globally were waiting for the Lumia smartphones that run on the new Windows 8.

Right now the Windows operating system accounts for only 4% of the global smartphone market, badly trailing Apple's iOS and the Android operating system from Google (Nasdaq: GOOG). Samsung's new Galaxy III runs on Android. That's just another reason it wasn't a great shock that Nokia was bumped out of the top 5 smartphone makers in the third quarter. That was the first time that happened since researchers at IDC began compiling such data in 2004.

Sales are unlikely to improve as much as initially expected in the short term either. This quarter is traditionally the strongest for sales of phones due to the holiday season. However, for Nokia, the flagship 920 Lumia smartphone will not be available for several more weeks. It will also be available only through one carrier, AT&T. This combination will likely hold back sales despite Nokia's market-leading mapping and photo technology.

Carriers Want an Alternative

There is one huge positive in the corner of Nokia and Microsoft though. The telecom carriers such as AT&T, Sprint, T-Mobile and Verizon (NYSE: VZ) want a viable third choice to the current duopoly of Apple and Google.

Verizon's CEO, Lowell McAdam, told the Financial Times recently that “the carriers are beginning to coalesce around the need for a third ecosystem. It'll between [Blackberry maker] RIM (Research in Motion) and Microsoft, and I expect Microsoft to come out victorious.”

He may be right about Microsoft beating out RIM. According to the consumer research firm Kantar Worldwide, in Europe, Windows will overtake RIM's operating system by the end of the year. Nokia's entry-level smartphone Lumia 610 seems to be winning over cost-conscious consumers there. In a first for Windows, it now has more than 10% of the market in Italy.

The Future

Europe could prove to be very fertile ground for Nokia and Microsoft since more than 50% of European consumers have yet to purchase their first smartphone and still have older phones. The brand these consumers is most familiar with is Nokia.

Another plus is that the launch of Windows 8 should give an impetus to developers to build applications and content that is currently lacking on Windows phones. The myriad of apps and content is a huge selling point for Apple.

But getting that content is a slow process and Nokia may not have the luxury of waiting too long. It is burning through its cash position rather rapidly thanks to its continuing operating losses. Standard and Poor's has forecast that, by year's end, Nokia will be down to 3 billion euros in cash. Some credit analysts even doubt whether the company can make a 1.25 billion euro bond repayment in April 2014.

So the Windows 8 effect had better kick in and fast. The next six to nine months will be critical to the fate of Nokia.

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

Can Apple Replicate Its Success in Emerging Markets?

The success of the iPhone from Apple (Nasdaq: AAPL) in the United States is well known to nearly every investor. The iPhone and the iPad are the reasons why the stock has performed so well for so long. But what about the future? At least as far as the smartphone market goes, the future seems to lie in the emerging markets and cheaper smartphones.

The number of entry-level smartphones, according to Deliotte, sold this year (mainly in emerging markets) is expected to soar to 300 million units. This will more than double the total number in use globally to in excess of 500 million units.

Emerging markets, especially China, are key to Apple's future growth. It is expected that in excess of 150 million smartphones will be sold in China alone this year. Apple's CEO Tim Cook has said numerous times that demand there is “mind-boggling”. China, which has surpassed the United States as the world's biggest smartphone market, is already Apple's second-largest market after the U.S. Some analysts are worried that it may be losing its touch in China since its revenues in the region for the second quarter fell by 28 percent to $5.7 billion. The same quarter in 2011 had seen revenues jump sixfold. On the bright side, iPhone sales in the quarter still doubled year-on-year.

The main reason for the drop in Apple's China region revenues is simply competition for market share in the world's biggest smartphone market. The company's main competitor right now has to be Samsung with its Android-powered phones. Android is the smartphone operating system developed by Google (Nasdaq: GOOG). Samsung's smartphones currently have 30 percent of the Chinese market compared to only 10 percent for Apple. That is due to Samsung's strong retail presence in the country, even in the hinterlands.

In fact, Android phones have been so successful in China and other emerging markets that it led analyst Benedict Evans of Enders Analysis to recently tell the Financial Times that “It is very clear that Android is hoovering up market share in emerging markets”. This includes India where Apple is actually struggling, selling less phones there than in Norway. Its market share there is about 3 percent, versus 45 percent for Android-powered phones.

Apple has more to worry about than Samsung too. Microsoft (Nasdaq: MSFT) and its partner Nokia ADR (NYSE: NOK) are placing a definite emphasis on China and other emerging markets as a growth engine. Microsoft believes that the only reason Android is so successful in China is that it happens to be on the cheaper smartphones. It and Nokia plan to match the low prices ($100-$150) while at the same time offering users a better experience with its Windows-powered phones such as Nokia's Lumia, a prototype of which was spotted in China this week.

The major plus for Microsoft's push into emerging markets with its phones later this year is that Nokia, unlike in the United States, has an almost unmatched reputation in the emerging world for producing quality products. But in China, Microsoft is covering its bases by also partnering with Samsung, HTC and ZTE.
Will Apple decide to compete on the low-end of the smartphone market? They may have to do something as the developed markets where they are so successful are becoming saturated. Most likely Apple will decide to the lower the price of their older 3G iPhone in order to make it more affordable to people in emerging markets. If they do this, these phones should sell well due to Apple's reputation. And don't forget that in China later this year Apple will, for the first time, release Siri in Mandarin.   This article was originally written for the Motley Fool Blog Network. Please read all of my articles for the Motley Fool at http://blog.fool.com/tdalmoe/.

Consumer Tech Hardware Wars Heat Up

The past several weeks has seen a continuing convergence between hardware and software and a ratcheting up of the competitive fires between tech giants Amazon (Nasdaq: AMZN), Apple (Nasdaq: AAPL), Google (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT) with the unveiling of new devices from both Google and Microsoft.

In actuality, the latest product unveilings indicate that companies like Google and Microsoft seem to be adopting Apple's corporate strategy. That approach involves integrated hardware and content. And it is a successful one...Apple dominates the tablet market with a two-thirds market share.

Google launched two new products – a new 7-inch tablet computer and a living-room media streaming device (Nexus Q) which runs on the latest version of its Android software, Jelly Bean. This version of Android, by the way, will offer voice search capabilities similar to Apple's Siri virtual assistant.

The Nexus 7 tablet is priced at only $199, undercutting the $399 price of Apple's entry-level iPad by a good margin. And on the content side, where Google trails Apple and Amazon, the company announced new TV and movie deals with content providers such as Disney and NBCUniversal and publishers like Hearst. Both devices also integrate the company's social network, Google+ while the Google Now feature offers live sports and traffic information based on users location.

The week prior to the launch of Google's tablet Microsoft showed off its entry into the tablet market, the Surface, which has a 10.6 inch screen. It also has a stand, two cameras and a built-in touch keyboard. The main difference between the Surface and other tablet offerings is that it will offer users an experience more akin to a laptop PC.

Microsoft will offer two versions of Surface. The more expensive version will run on Windows 8 (due out in the fall) and uses a new Intel Core processor. A lower priced version features Windows RT and runs on an ARM processor that is found in most tablets. The company has yet to reveal at what price the two versions of Surface will sell for.

Of course, Amazon is not standing idly by. The company also offers a $199 tablet based on the Android operating system. And it recently announced that, for the first time ever, it is recruiting app developers as the company prepares to roll out its smartphone and tablet (including the Kindle Fire) platforms later this year in Europe.

So can any of the new devices challenge Apple's supremacy in tablets? Of course, they can. The tech world is constantly in a state of flux. But there is one key to doing that.....

That key has to be the thousands of independent software applications developers. Without content and apps, rivals to Apple (the iPad offers more than 225,000 apps) have little chance to compete. Can Microsoft and others entice app developers into writing apps to be downloaded to their devices? Google has a decent job so far with thousands of apps available and with 20 billion downloads. Now it remains to be seen if Microsoft can get developers to come up with apps for the Surface.

This article was originally written for the Motley Fool Blog Network. make sure to read my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.

A Look at the Corporate Tablet Market

In the battle for the consumer market in tablet PCs there seems to be a clear winner so far – the iPad from Apple (Nasdaq: AAPL). The latest figures from research firm IDC for 2012 show that Apple's worldwide market share grew from 54.7 percent in the fourth quarter of 2011 to 68 percent in the first quarter of 2012. Samsung was second and Amazon was third.

But it is still anybody's game in the corporate market for tablet PCs, although Apple is leading. A survey earlier this year by NPD In-Stat found that 68 percent of tablets provided by companies to their were iPads. Then there is the whole BYOD phenomena. More and more corporations are allowing their employees to bring their own device to work, adding even more growth in this sector.

Companies are doing so because, once security issues are addressed, BYOD projects result increased employee satisfaction, greater worker flexibility and significant cost savings. Take Citrix Systems (Nasdaq: CTXS), the cloud networking and visualization technologies company, for example. Just three years after launching a limited BYOD program, it has already met the 20 percent cost savings goal it initially set thanks to a large drop in desktop PC support requests.

The other major players in this market include tablets based on either the Android operating system from Google (Nasdaq: GOOG) or ones based on Windows from Microsoft (Nasdaq: MSFT). Google's Android does lead Apple in sheer numbers in the smartphone sector but that success has not translated to tablets. Its growth seems to be hindered by security concerns (very important to corporations) over a lack of control over the download of apps. Meanwhile Microsoft is being held back by the fact that many employers are awaiting the release of the new Windows 8 later this year as to whether to allow employees' Windows devices.

This is a fast growth market for the telecommunications companies. In fact, AT&T (NYSE: T) recently said that over the past year it has seen “an explosion in use” of tablet PCs by corporations. The company reported that the number of companies using tablets grew by 194 percent in the first quarter of 2012 versus the same year-ago period. It added that more than 27,000 business customers have adopted mobile device management deals with the company.

AT&T and its main rival, Verizon Communications both view the trend among companies to mobilize their business operations as a significant opportunity to add a large amount of revenue to their bottom line. Both firms have invested heavily into mobile app development and services that target business customers. AT&T says that 50 percent of Mobile Enterprise Applications Platform customers purchase additional software or services from the company, justifying the investment into these apps.

Investors can be assured that this macro trend of companies adopting BYOD will only continue in the future. This is probably good news for Apple, although rivals are still nipping at its heels. But for certain, this trend will turn into a major cash generator for the large telecommunications companies as they offer to manage BYOD programs for their customers.

This article was originally written for the Motley Fool Blog Network. Make sure to read ALL of articles daily for the Motley Fool at http://blogs.fool.com/tdalmoe/.

Tech Patent Wars Ongoing

There is a conflict going on in the technology space that many investors are still not aware is occurring. The ongoing battle involves the future of the industry and who the winners will be. The ongoing turf war involves innocuous items, often overlooked...patents.

All of today's tech devices could not exist without a myriad of patents. It is estimated, for example, that inside the average smartphone is embodied about 250,000, often overlapping patents of various kinds from both the computing and the mobile communications world.

All of these varied patents have multi-billion dollar lawsuits flying between among some of the best-known names in the technology industry including Samsung, Facebook (Nasdaq: FB), Apple (Nasdaq: AAPL), Google (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT). In the aforementioned smartphone business alone, where much of the legal action is occurring, $15-$20 billion has been spent in the last year alone buying up patents with legal bills conservatively estimated at half a billion dollars.

Proof of this new force at work in the technology industry came nearly a year ago when patents owned by bankrupt telecom equipment manufacturer Nortel Networks fetched $4.5 billion at auction. That was five times the initial estimate!

Among the losers at the auction, when compared to Apple and Microsoft, was Google. So what did it do? Several weeks later, it went out and spent $12.5 billion for Motorola Mobility. The main reason behind this deal was so Google could get its hands on Motorola's intellectual property.

And the action continues unabated. Just last month, Microsoft paid $1.1 billion for a number of important patents held by AOL (NYSE: AOL). All parties involved seemed to benefit. AOL received a lot of cash for patents it was not longer using, while Microsoft took home some of the first social networking patents ever granted. Facebook, a Microsoft partner, is now insulated form the possible legal attacks which would have followed if those patents had gotten in some other companies' hands.

This latest transaction again highlighted what is going on in the industry.....

The haves, cash-rich companies like Apple and Google, are buying up lots of legal protection for their business from the former leaders in the industry such as Nortel, AOL, Motorola and even Kodak that have little valuable left except for their intellectual property. In the long run, this could stifle innovation in that only giant companies may be able to compete in promising new areas like smartphones and social networking since they will be the only ones with the financial wherewithal to not only afford buying patents but also fend off lawsuits (think of the Yahoo versus Facebook lawsuit).

In the past, when this was not such a litigious society, disputes between converging technologies like the radio and the telegraph were settled amiably with cross-licensing agreements which benefited all the parties involved. But such an outcome today is highly unlikely...many more lawsuits are sure to follow soon. Some likely ones which come to mind are Yahoo suing Twitter, Amazon suing Facebook, and Amazon being sued by the tablet computer companies including Apple.

That's what makes technology investing so tough today. Picking the right company in which to invest may not come down to who has the best product or the best management, but who hires the best lawyers. Or who has the most cash with which to snap up the most patents. That likely means firms like Apple and Google may be on top longer than expected and perhaps for many years to come.
 
This article was originally written for the Motley Fool Blog Network. Make sure to read all of my daily articles for the Motley Fool at http://blogs.fool.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/.

Nokia's Last Hope: Lumia

Mobile phone manufacturer Nokia ADR (NYSE: NOK) is no longer Finland's most valuable company as measured by market capitalization. The latest fall in Nokia's share value came after the company announced a surprise profit warning and technical glitches associated with its new Lumia phones.

Lumia is the first Windows-based phone that came as a result of the collaboration between Nokia and Microsoft (Nasdaq: MSFT). It was jointly launched in the US by Nokia, Microsoft and AT&T (NYSE: T). The problem – it it had difficulty connecting to the internet on AT&T's LTE 4G network – came to light soon after the Lumia 900 phone went on sale in the US.

Even more surprising than the technical problems with its new phone was the surprise profit warning. Nokia warned that its low-end phone division – which had always enjoyed great success in the emerging markets – was losing market share much faster than expected. Sales in this division sank 35 percent in the first quarter to about $3 billion.

Low-end phones, which make up 30 percent of Nokia's sales, lost market share to both Chinese manufacturers and devices using the Android operating system from Google (Nasdaq: GOOG). The loss of market share, particularly to Samsung's Android devices, is in large part due to the fact that Nokia is dumping its current operating system, Symbian, rendering those phones obsolete in a few short years.

These recent events just continue to emphasize the fact that Nokia has been left behind in the smartphone race in the last few years. Nokia's decline has left its shareholders smarting. Its stock sank by a fifth just last week after the bad news, leaving it down 90 percent from its peak since the iPhone from Apple (Nasdaq: AAPL) was launched in 2007.

Perhaps the last hope for the company lies in its tie-up Microsoft and the resulting Lumia phones. It has not been an auspicious start for Lumia, however. Even ignoring the technical glitches, initial sales (launched in November globally) of the Lumia range of phones have been disappointing. In the first quarter of 2012, only 2 million Lumia phones were sold. In comparison, Apple sold 37 million iPhones during the same period.

It remains to be seen whether the Lumia 900, with its very reasonable $99 price tag here in the US, will sell. Nokia has even been forced to offer a $100 credit on phone bills to anyone who buys it before April 21 in an effort to stimulate dull US sales so far. Of course, both Microsoft and AT&T are hoping Lumia succeeds too.

The lack of success so far for Lumia certainly calls into question whether consumers really want a Windows-based smartphone. If it turns out they do not want Windows-based phones, the tie-up with Microsoft has sealed Nokia's fate as it now has no future options except producing Windows phones.

Some investors already think the company is doomed as the cost of insuring the company's debt soared to a record high, implying that Nokia's debt was already considered to be “junk” status. The company is not dead yet though and still has net cash of 4.9 billion euros. However, it did burn through 700 million euros in the first quarter and has stated that it must continue spending heavily on marketing the new Lumia phones. So Nokia shareholders should not be surprised to see the dividend eliminated soon.

If the company burns through its cash pile, it may resort to selling assets in an effort to keep afloat. These assets could include mapping technology company Navteq or perhaps even some of its intellectual property rights. But if Lumia phone sales don't pick up some time this year, Nokia itself may be up for sale to Microsoft or other bidders. That would be a sad end for a company that once dominated the mobile phone industry.

This article originally was written for the Motley Fool Blog Network. Please make sure to check out my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/

Sales of $100 Smartphones Set to Soar

The number of entry-level smartphones, selling for less than $100, sold this year is forecast to soar to 300 million, more than doubling the total number in use globally to above 500 million. This forecast comes from Deliotte which also said that there were already roughly 200 million such phones in use worldwide, with most of those having been sold just last year. Deliotte also predicts that due to the soaring number of smartphones sold the number of applications available on these devices will also double to more than two million.

New low-cost chip technology is what is bringing about this whole new world of low-cost smartphones, especially in the emerging economies like China and India where smartphones are now becoming affordable to everyone.

In places like India, high prices for phones have been the main barrier to widespread use of mobile devices. In fact, Apple (Nasdaq: AAPL) sells less phones in India – with 602 million active phone subscribers – than it does in Norway! But it is the cheaper smartphones which sell in India, where it is forecast that smartphone shipments will grow 70% annually through 2015.

This shift toward low-cost smartphones is even more evident in China which surpassed the United States in the third quarter of 2011 to become the world's biggest smartphone market. The Asian brokerage firm CLSA says China's smartphone market will more than double to more than 150 million units in 2012.

In western markets high-end smartphones, like the iPhone from Apple, in the $600-$800 range, dominate. In China, however, such phones account for only one-fifth of total phone sales. The remaining four-fifths of sales that sell in the $100-$150 range and, after subsidies from phone operators, cost very little.

This move toward low-cost smartphones in emerging markets may be the last hope for Finnish mobile phone company Nokia ADR (NYSE: NOK) which has lost its once preeminent position in the industry to rivals like Samsung and Apple. Nokia does have an opening here since Apple's iPhone is perceived globally as a premium product and well out of the reach of many consumers in the emerging markets.

Nokia's management is well aware of the opportunity which lies before it. At the Mobile World Congress in Barcelona last week, Nokia management did state that one of the company's strategic goals was “connecting the next billion” of the global population to the internet through smartphones.

Nokia and its new partner Microsoft (Nasdaq: MSFT) are in particular focusing on China. According to IDC, the most popular operating system there is Android. But Microsoft thinks Chinese consumers are just using Android because it happens to be on the cheaper smartphones. If it offers a better experience through Nokia smartphones, Microsoft thinks it will quickly have the most popular phone software in China. The company is also targeting China by opening mobile application stores there.

Microsoft's partner Nokia believes the smartphone which will revive its fortunes is the Nokia Lumia 610. It believes this model will be at the forefront of the new growth engine for the industry, low-cost smartphones. The 610 should sell well in the emerging markets where Nokia is still a leader. But it remains to be seen if the phone can be profitable enough to turn around Nokia's declining fortune.

The article was originally written for the Motley Fool Blog Network. Please be sure to check out my daily articles for the Motkey Fool at http://blogs.fool.com/tdalmoe/

Yahoo and Microsoft Again

There is a scramble on for Yahoo (Nasdaq: YHOO). The company has entered talks with at least two private equity firms – Silver Lake and TPG – among others.

Let's not forget too there is also Jack Ma and his company, Alibaba, which is looking to break its ties with Yahoo, even if it involves buying out the company. It said that he and Softbank, Yahoo's partner in Japan, may make a joint bid for Yahoo.

Back in 2005, Yahoo acquired a 42% stake in the Chinese e-commerce company. A recent private equity investment valued Alibaba at $32 billion, so Yahoo's Alibaba stake is one of the few jewels left in its crown.

The corporate melee over Yahoo was triggered several months ago by the firing of CEO Carol Bartz and the news that Yahoo was considering strategic options for the company.

These options initially concerned only plans for turning around the company, but they have quickly expanded. Options now include sale of its Asian operations or even the entire company.

So with Yahoo back in play, one question investors are asking is whether Microsoft (Nasdaq: MSFT) should take another run at the company.

As investors will recall, Microsoft attempted a takeover of Yahoo in 2008 at $33 a share, but its bid collapsed. Sadly for Yahoo investors, that price is more than twice the current stock price.

Microsoft blamed the breakdown of the talks on Yahoo co-founder Jerry Yang who kept holding out for a higher price. The Yahoo side blamed Microsoft CEO Steve Ballmer who they say simply walked away from the deal.

After that very public and unpleasant experience, it is very doubtful that Microsoft would launch another bid for all of Yahoo.

However, it does seem to be taking an interest in Yahoo again. The reasoning is that, at the least, Microsoft wants a seat at the table when Yahoo's fate is decided so it can protect the relationship it has with Yahoo.

Microsoft has an alliance with Yahoo where it outsources its internet search business to Microsoft. Some analysts estimate this business alone accounts for half of the value of Yahoo's core operations, excluding the company's operations in China and Japan. So it is not surprising that Microsoft is trying to protect its interests.

But perhaps Microsoft has something else in mind.

A full merger of its MSN online service with Yahoo could be advantageous. It would bring together two complimentary and well-known internet properties. The cost savings will be meaningful, even for a giant like Microsoft. And in today's smartphone and tablet-centric world, it may create a powerful portal through which content can be distributed.

Microsoft may also be interested in Yahoo's presence in China through Alibaba. But with Jack Ma battling so fiercely for his independence from Yahoo, it is doubtful he will want to tie up with another American tech giant.

The final outcome in the scramble for Yahoo is anybody's guess right now. But most likely Alibaba and Softbank will gain their independence, while Microsoft is a main contender for the rest of Yahoo.

This article originally appeared on the Motley Fool Blog Network. Please check out all my articles there at http://blogs.fool.com/tdalmoe/