Daily Gains Letter

How This Tech Company Will Outlast the PC’s Extinction

By for Daily Gains Letter |

 Tech Company Saved Itself from the Expiring PC MarketThe first raft of first-quarter earnings reports are in…and they’re not a total surprise. Against the backdrop of a weak U.S. economy and waning consumer confidence, some big go-to stocks are beginning to show signs of distress—few more (right now) than makers of personal computers (PC makers).

Two research companies tracking PC makers delivered their reports for the just-completed fourth quarter—they’re not encouraging. Gartner pegged fourth-quarter PC shipments at 82.6 million, a 6.9% year-over-year decrease. For all of 2013, it said sales fell 10%—capping off the worst decline in PC market history. (Source: Hardy, Q., “For PC Makers, the Good News on 2013 Is That It Is Over,” The New York Times web site, January 9, 2014.)

Numbers from International Data Corporation (IDC) were slightly better (or less bad). It said PC shipments fell 5.6% year-over-year to 82.2 million units. For all of 2013, IDC reported that 314.5 million PCs were shipped—which reaffirms Gartner’s reported 10% drop from 2012. (Source: Ibid.)

But that’s where the similarities ended. When it came to the future of PC makers, Gartner said the PC market could improve in 2014; meanwhile, IDC said there was no reason to believe the market would stabilize. Why? Because PCs are giving way to mobile devices, such as tablets and smartphones.

Going forward, PC makers will have to ask themselves if younger, on-the-go consumers, who use their mobile devices as a first computer, will ever want to invest in a fixed device like a PC.

IDC also said sales of PCs fell to 108 million units in the Asia Pacific (outside Japan) region—marking the first annual double-digit decline for this area. The decline in PC sales was the worst for PC makers in Taiwan, where fourth-quarter sales for Acer Inc. tanked by 28.6%. In a move that would shake up the overpaid underachiever on Wall Street, the Taiwanese PC maker said its executives will take a 30% pay cut. (Source: Gold, M., “Acer fourth-quarter loss leads to 30 percent executive pay cut,” Reuters, January 17, 2014.)

With more and more people turning to mobile devices to access and share information, it doesn’t look like 2014 is going to be a banner year for PC makers.

What about one-time PC makers? While International Business Machines Corporation (NYSE/IBM) reported weak fourth-quarter results, their future looks brighter than most PC makers.

IBM recently announced that revenue fell five percent to $27.7 billion in the fourth quarter—its seventh straight decline in quarterly revenue and fourth straight quarter that the company’s revenue fell short of analysts’ targets. Hardware revenue tanked 26% to $4.26 billion, services revenue fell 3.6% to $9.92 billion, and software revenue increased 2.8% to $8.14 billion. On a brighter note, the company said earnings increased six percent year-over-year to $6.19 billion, or $5.73 per share. (Source: “IBM Reports 2013 Fourth-Quarter and Full-Year Results,” International Business Machines Corporation web site, January 21, 2014.)

But not all is lost for this now former PC maker. The company has extracted itself from the slumping PC industry, so it is not limited by the same technological parameters as such PC makers as Lenovo Group Limited, Hewlett-Packard Company (NYSE/HPQ), or Dell Inc. (NASDAQ/DELL).

If anything, IBM has transitioned into a software company—and over the next few years, software will play an even more important role in the company’s growth. A product offering that has been kind to companies like Microsoft Corporation (NASDAQ/MSFT) and Oracle Corporation (NYSE/ORCL).

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