Another Tech Disappointment

07/24/2013 6:00 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Recent earnings from another tech giant was disappointing to tech investors and Moneyshow's Jim Jubak shares his outlook for the sector going forward.

If you are looking for some comforting words about the technology sector and more importantly, more specifically the PC sector, you didn’t get them from Intel when the company reported earnings on July 17.  Revenue came in in line so no surprise there.  The problem of course is that in line with expectations meant a 5% decline from the same quarter of 2012. 

The company then went out further and said, well, you know, we were talking about low single digit growth in revenue for the rest of 2013 and we think now we’re going to be flat so instead of 5%, 3%, 4%, we’re talking about 0%, no growth there at all, and Intel also said, you know, we were thinking that maybe we’d see our margins around 60%, we think 59% is now more likely and margins are always expressed plus or minus two percentage points but it’s the trend that’s interesting here or important here or sort of daunting here, 60% to 59% is the wrong direction. 

What you’ve got is a continued, well, two things.  One is you’ve got a continued collapse of PC sales, Gartner and other market watchers are going out and they’re producing numbers that say PC sales are down like 11%, 12%, 13% year over year and that’s because people are making transitions to other devices.  They don’t need a PC perhaps because they’ve got a cell phone, they don’t need a PC because they’ve got an Android or an Apple iPad or Android pad or whatever the Google product is called, and so they don’t need to buy a full PC for that. 

All those things, and the category of notebooks which was supposed to take off and drive the market really hasn’t done it, so you’ve got a big, big collapse there going on in PC demand and you’re also in the middle of a transition.  You’ve got a lot of products that there is a new product out there somewhere.  I’ve seen analysts, market watchers talking about 2014 being the big breakout year for what Apple calls the iWatch but Samsung and Sony are going to be in the market first so there is another transition out there. 

It’s a continued transition away from PCs, away from PC chip makers like Intel.  They’re scrambling to make the transition themselves to move into the mobile chip device market that’s dominated by companies like ARM and Qualcom.  The problem there of course is that we’re seeing the kind of drop off in Smartphone sales I think that’s got a lot to do with product refresh cycles so ARM and especially Qualcom are not talking a big gains in their sales.  They’re not seeing it.  I think that’s more a question of when the new products come online. 

For PC companies, it’s much more serious and I think we’re still looking at another couple of quarters for Intel before the company can make some inroads in markets that are growing faster than the PC market, which wouldn’t be hard since PC market is falling.

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