"Dad, how do you know you have picked the right girlfriend?" That was almost enough to make me spill hot coffee on my lap as I was driving my son to one of his sports activity the other day!
Naturally, I reverted to what my Grandma used to tell me when I asked her the same question decades ago. She said, you need to pay attention and be observant about the following:
- Is her room consistently clean or messy?
- Does she treat her parents and siblings with respect?
- What does she look like first thing in the morning?
My son looked at me and said "why would I go to her room or why would I see her early in the morning... it isn't like I'm marrying her!" He got out of the car, thanked me for the ride and rolled his eyes.
During the dot.com era, Microsoft (MSFT), Dell (DELL), Cisco (CSCO) and Intel (INTC) were known as the "four horsemen" of the Nasdaq Exchange as its performance was heavily influenced by these 4 stocks. During this era, it was unimaginable to see the "Wintel" (Windows/Intel) consortium competing with each other (i.e. Intel wouldn't be in interested in the OS business and vice versa). Both these titans co-existed very well with Dell (who manufactured Wintel based PC's) and Cisco (who was the main networking supplier).
The chart below sums up the mutually beneficial relationship these companies had before the dot.com bust (notice that Apple's (AAPL) performance since the 1990's hasn't caught up with the others yet!)...
Remember when I wrote about "Apple and The 3 Little Pigs"? Given Research in Motions' (RIMM) continued implosion, it appears that the new horsemen - Apple , Amazon (AMZN), Google (GOOG), and Microsoft , have officially altered the traditional terms of engagement. For the first time ever, all these giants are now in the hardware business. The battle lines are blurred and will continue to be blurred as technology continue to advance and become ingrained in everything that we do. Steve, I'm sure you saw this coming right?
"Imitation is the sincerest form of flattery" C. Colton
Microsoft announced the following developments:
- A tablet/laptop hybrid called "Surface" manufactured by Asus.
- Windows 8 powered phones are coming. These phones will initially be manufactured by Samsung, HTC and Nokia (NOK).
- Windows8 will be available as an upgrade for $39.
Not to be outdone, Google announced:
- A 7" tablet called Nexus made by Asus. At first blush, it looks like a direct assault on Amazons' Kindle Fire and Research in Motions' Playbook as it is priced at $199 and Google is apparently not making a boatload of money on this.
- An Apple TV like orb called "Nexus Q" priced at $299.
Some quick observations:
- Microsoft didn't provide the pricing details for Surface and it would only be available online or via its retail channels. Maybe this clip is the reason why (remember the times when your parents would yell at you not to touch or play certain valuable objects in the house because you may break them?).
- I believe that Microsoft wants to control the sales channel in order to manage inventory. It certainly does not want to copy Research in Motions' epic Playbook inventory blunder (who again, "surprised" the market with further losses and delays).
- Given that "Surface" has two versions, I'm assuming that it will have the low end version priced around $699 (or lower) and the higher end version priced at $899. They would want to appeal to those who still want Flash and Office. I believe that Surface will be targeting the mid/high end iPad and the low end MacBook Airs.
- Given that their traditional OEM partners were apparently caught off guard, this move (even if marginally successful) may limit the OEMs to compete in the sub $299 to $399 tablet market as the $199 market is now being fought over by Kindle and Nexus7.
- Doesn't Surface kind of look like this?
- Interestingly enough, the current Lumia lineup won't be able to upgrade to W8. I don't know about you, but it certainly appears that Nokia is getting shafted again. It certainly doesn't bode well for its share price; who knows, maybe this was Elop's way of gift wrapping Nokia cheaply to Microsoft . Remember when I wrote:
Droids won't be the threat; Windows8 and the Win powered phones from NOK (for now) will be - assuming it can leverage MSFTs' huge user base. I wouldn't be surprised if HTC and/or Samsung diversifies more with Windows powered phones.
- Even Gartner is predicting that Windows phone will have 20% of the worldwide smartphone market in 2015. Yup, it is the same firm that couldn't figure out if an iPad was a PC or a laptop or a breed of its own.
- Nexus' "Q" is apparently made in the USA. For an extra $200, I wonder what compelling value proposition would it have over an Apple TV that sells for $99?
- Without Apple and Google's disruption, would we have seen a $39 Windows upgrade? Looks like margin compression may be in the cards for Microsoft .
With the 2 Titans' recent foray into manufacturing its own branded tablets and Google's soon to be released Motorola powered phones, it would appear that both Microsoft and Google have no problems throwing their OEM partners under the bus. Would these new developments lead towards further fragmentation? If Google could equip their Motorola phones with the latest and greatest OS; why would they share it right away to their OEM partners when margins are at stake?
I wonder how Michael Dell is feeling right now; maybe he should just shut it down and give the money back to his shareholders. That would be epic Karma. At least he isn't alone; a trip to memory lane should help keep things in perspective.
Which of these 4 stocks will outperform the market over the next 3 to 5 years? Can we use 3 simple questions to get us the answer?
How are the comparative financial performance?
Unless I'm bargain hunting, I try to keep my approach to fundamental analysis of any large cap stocks simple. I use Finviz.com and assign a point system for each metric to score each of the stocks that I'm interested in; if I'm comparing 4 stocks, I'll use a 4 point system to rank the candidates.
Using the example below, I'd assign 4 points to Apple , 3 points to Microsoft , 2 points to Google , and 1 point to Amazon when it comes to the ROA metric.
Add the scores up; you will find that Apple scores the highest and Amazon scores the lowest. Does this mean you cannot make money trading the other stocks? Of course not! I use this process for 2 purposes: (A) to see if my long or short bias on a stock is fundamentally supported and (B) to help me with my capital allocation.
A cursory look of the ratios will also show that Microsoft appears to be the cheapest of all. Will the success of Surface and Windows 8 be the catalyst to move this stock past $33?
How easy are the products to use and understand; are they seamless?
The answer to this can be very subjective depending on your hardware and OS bias. My approach to this is pretty simple - I try to use each competing product(s) and figure out which one provides the best seamless user experience. Aside from personal experience, I try to find external survey results. Based on various current suveys, the iPad, iPhone and Macs are highly rated.
I still haven't figured out why Apple's OS gets so much thrashing for being a "walled garden". I run four OS (Windows 7, Ubuntu, Fedora and OSx) at home. Unless you are one serious tech geek, I'm more lost with using Ubuntu and Fedora than Windows or OSx!
My preference is using my Mac mini (2.3 GHz i5 with 8GB DDR3) with the wireless keyboard and magic pad; it is very quiet. Ironically, it was an Apple retail employee that happily showed me where to buy cheaper RAMs and how to install it myself!
How do they treat their clients and partners?
Remember FoxConn's deal with Sharp? It appears that FoxConn has an axe to grind with Samsung. How do you think Microsoft's and Google's OEM partners are feeling right now after getting shafted? Will Microsoft and Google be subjected to the same scrutiny as Apple did when it comes to their manufacturing process and employee living conditions? Why isn't NYT doing an expose' on Microsoft's retail operations?
If I had any problems with my Apple products, there is always the comfort of an Apple store nearby instead of calling a 1-800 somewhere. Unless you are biased like the New York Times, it feels good to know that you are providing continuous support to the Apple retail employees in the USA! I don't think I could do that with the other 2 companies.
Apple appears to be ready for a pre-earnings run that may take us to about $630. I wouldn't be surprised if unsubstantiated stories about the iPhone 5 and lowered guidance may spook the market again.
Regardless of the news, my gut tells me that the next move will be massive again as Apple will now be competing directly with Microsoft and Google and its performance against the 2 giants will lead to further scrutiny. It took about 5 years for Research in Motion , Nokia , Palm, Dell , and Hewlett Packard (HPQ) to lose their significance. Who will be the next casualty in this epic Mobile War?
I've created a portfolio to track how this epic battle is going to unfold...
Was picking Apple as the preferred stock to trade really as easy as Eeny, Meanie, Miny or Mo? You be the judge. Just like picking girlfriends, the "tell tale" signs (based on what you are looking for) are usually there; the most difficult part is keeping your emotions in check. I wonder how I should explain that to my kids!