The announcement by [[IBM]] that it will re-sell Apple (NASDAQ:AAPL) products to its enterprise customers does create winners and losers, but the knee-jerk moves by investors to buy the partners may not be the way to play it.
Speculators are taking both stocks up over 1.5% in early trade. They see IBM getting some margin on its sales of Apple gear to enterprises, Apple getting a boost to smartphone sales against Google (NASDAQ:GOOG) Android, and both companies offering complementary product and service lines - Apple simplicity and IBM complexity.
But this deal also impacts other players, and action in some of these companies defies expectations for the IBM-Apple combination.
Microsoft (NASDAQ:MSFT), for instance, spiked just like IBM and Apple. Yet this deal is aimed squarely at its weaknesses - its phones, its PCs, and its Windows operating system. The Nadella memo promises lay-offs, not new hiring. Why pay a premium for that?
Apple and IBM chose to do business with one another and ignore Microsoft because what ties their two product lines together is Linux. The Mac OSX is based on a Unix, similar to Linux, and iOS becomes increasingly Unix-like. All of IBM's product lines are tied to Linux. This deal leaves Windows in the shade.
Another big winner most analysts aren't looking at here is Red Hat (NYSE:RHT). Red Hat, which produces both a branded Linux and a full cloud stack used by IBM, has until now been considered too small - at $1.5 billion in revenue, to interest another player. With this deal it should start to interest IBM very much.
Hewlett Packard (NYSE:HPQ) is another big loser here. They have a cloud play, aimed at enterprises, that could easily lose share to an IBM-Apple pairing. They sell PCs that could also lose out. A link to Microsoft would be weak because both companies have their own, incompatible clouds, and both compete in the client space.
Intel (NASDAQ:INTC) may be the biggest loser in all this, yet curiously its stock rose nearly 8% in early trading. It delivered a surprise with its second quarter earnings - and gave its shareholders a share in those gains. But all that is looking backward. Investing is about what you're going to do for me, not what you have done.
How is Intel going to increase its market share when it's locked out of iOS by Samsung (and now Taiwan Semiconductor (NYSE:TSM), which now makes chips for Apple)? Intel is a chip supplier to Apple, but only in the Mac space, not in the phones and tablets that are part of the IBM deal. How is WinTel going to grow against Android, with IBM and Apple teaming up to lead enterprises away from PCs entirely?
At current prices Intel is selling at a P/E of 16.7, Microsoft at 16.6, Apple is at 16.1. IBM sells at 13 and HP sells at 12. Do these multiples make any sense in a world where IBM and Apple are grabbing enterprise share with both hands?
The one player not heard from in all this is Amazon.Com (NASDAQ:AMZN), whose conference in New York focused on its success bringing enterprises to its AWS cloud. Amazon's devices are aimed at consumers, they are entirely Amazon-centric. It still lacks a play in enterprise devices, and while it may very much prefer to go alone in this space, it could still become a dance partner of one of the players now sitting on the sidelines.
So let's summarize. Buy the partners - at 13 times earnings IBM is woefully undervalued now. Ignore the losers, like Intel, Microsoft and HP - the brave may even sell them short. And watch Amazon, which now needs a dance partner in the enterprise space.
Disclosure: The author is long AMZN, AAPL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.