Although the technology sector is constantly changing, there are three companies which clearly stand out amongst the others: Cisco Systems (CSCO), Dell (DELL), and Hewlett-Packard (HPQ). However, with a look at the performance of the companies, it becomes apparent that Cisco is the best option.
The three companies provide similar services and have been competitors in many different fields. The question remains, however, why is Cisco the best choice? What makes it stand out from its two competitors?
Dell is more commonly known as a computer company; however, it has now become a network equipment provider, as well. This is evident from its recent release of PowerEdge servers.
Dave Johnson, Vice President of the Corporate Strategy division of Dell, has been working to change the company from predominantly distribution into a company that will deal with technological tools. Through various acquisitions and takeovers, the company is reinventing itself. It seems to be working as the company is growing, all thanks to the new approach. In the process, however, Dell has lost spot of the number-one computer company to Hewlett-Packard.
Unlike Dell, Hewlett-Packard has reinvented itself and now is moving on the road to prosperity. It claims a top spot in both the computer and in the hardware industry. Although, the company does specialize in hardware, it is trying to break into the software solutions field.
Its attempts are evident from its release of HP CloudSystem. The software has been developed to provide corporate information to employees who are not in the main office. Furthermore, it can improve resource utilization.
In the stock market, Dell has grown its share price 11% in the past year. It is showing promise for a nearly 20% gain in its share price this year. Although the company's debt is higher than the other companies, it has more total cash than its debt.
On the other hand, Hewlett-Packard's price to book and price to earnings ratios are seemed to be undervalued. It has shown a raise of 2.1% in its yield and a payout rate of 15%. This seems to say that the company is not having any troubles maintaining its dividend.
Cisco Systems, a network company, leaves them both in dust. Its stock has climbed 50% in the past six months. It has raised its dividend from 1.3% to 1.5% and has almost three times the amount of cash ($47 billion) than its total debt ($17 billion). The ability to create a profit without overspending can make quite a bit of difference. The company's marketing team seems to have this ability.
The company has focused on solutions for corporate, small business and home customers. As such, it is well known for its routers, switches and modems. More importantly, its reputation was built on switches.
Like the other two companies, however, it is trying to expand into different areas. This is evident from CLEO (Cisco Router in Low Earth Orbit) and IRIS (Internet Routing in Space). These were designed to eliminate repeaters and to include IP routers. They are more powerful and less expensive than their competitors and have given Cisco a definite advantage in the swiftly growing Internet and mobile communications market.
The company has had 10.8% quarterly revenue and 43.5% earnings in the 4th quarter. In a time when both Hewlett-Packard and Dell are trying to break into cloud computing, Cisco is already ahead because of its applications in satellite-based equipment. With the increase in use of smartphone, tablets and laptops, faster data transfer will become more and more important. Cisco will be the clear leader.
Furthermore, Cisco has a manageable debt load, while Hewlett-Packard is $31 billion in debt. Although Hewlett-Packard has done well in some reorganizing, for example, bringing in executive director, Meg Whitman, the large debt could place some financial burden on the company that it cannot afford. It could affect the financing and business decisions, perhaps for the worse.
Although Dell has had no problem with keeping a relatively small amount of debt, yet the company is not paying its dividends. This has caused many investors, who are looking for the company's revenue growth in the last year, to find other options. More people are noticing the issue due to the floating of 4% of its stock in short share. The company will prove that it has made some changes before it will make some significant improvement on Wall Street. On the other hand, the investors will stay interested because of the company's financial savvy.
For all the reasons included, it is obvious that Cisco is the better choice because it maintains its dividends. More importantly, it seems to be one step ahead, this is something that is very important for the technology industry. With cloud-based software and data storage becoming a significant part of the technology sector, Cisco released what would be the logical next step.
In conclusion, Cisco is a great investment. The other two companies are pulling ahead and are great at what they do, but Cisco is an investment that is more likely to pay off in the end.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.