Tech Leaders in Transition

08/15/2013 7:00 am EST


John Dessauer

President, John Dessauer Investments, Inc.

John Dessauer, editor of John Dessauer Investments, looks at two important tech leaders. Although both companies disappointed analysts in the latest quarter, Dessauer sees the setbacks as opportunities.

Intel (INTC) reported second quarter earnings of $0.39 a share, a penny below the consensus estimate. Sales at $12.8 billion were in line with the analysts' estimates.

The quarter suffered because PC sales were sluggish and most analysts expect that to be the case in coming quarters.

Intel was slow to get involved in the mobile and handheld technology market, but has been making real progress in that regard.

Intel has a new CEO. Analysts are waiting to see how the changes he is making work out in terms of sales and profits. He has already flattened the management structure to improve new product development and basic decision making.

Intel is in transition, with a new CEO and an aggressive move into new markets. Intel is ahead of the competition in servers, and moving fast in mobile and handheld devices.

Intel's new CEO predicts a huge drop in PC prices, (and a corresponding jump in sales), thanks to the company's new chips. He sees clamshell and touchscreen PCs selling for $300 or less. I am keeping a buy rating on Intel with a $30 twelve month stock price target.

Meanwhile, Microsoft (MSFT) reported fourth fiscal quarterly results that were below analysts' expectations and disappointed investors.

In the quarter, Microsoft earned $0.59 a share, far better than the $0.06 loss reported last year. However, analysts were hoping for a much better quarter with earnings per share of $0.75. For the fiscal year that ended June 30, Microsoft earned $2.62 a share, down from last year's $2.78.

The main reasons for the decline were a sales slump in the PC market, and a price cut for the new tablets. The good news was that sales in the fourth quarter were up 10% over the prior year quarter.

In response to the changes in the market for consumer technology and associated devices, Microsoft is reorganizing. The organizational structure is changing to allow faster response to market developments, and more efficient decision-making.

In my view, the demand for technology will remain strong. Prices for existing technology and existing devices will come down, stimulating demand. Intel's new chips are a key factor for future PC and related device prices.

Microsoft's management referred to Intel's new chips in the conference call following the earnings news.

While they did not make any specific predictions, they did say the new chips are “exciting.” The market's negative reaction to fourth quarter results is a buying opportunity. Microsoft is a buy.

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