By Brian Tracz
Phillipe Laffont, one of Julian Robertson's Tiger Cubs, gave an interview on CNBC this morning commenting on his vision for the tech market. His Coatue Fund has major holdings of Apple (AAPL), Google (GOOG), and Equinix (EQIX), all of which you can view here. His outlook has a number of takeaways:
(1) The tech sector is in a post-PC stage. This is easy to say with all of the tablets floating around and with lagging laptop sales. But Laffont notes that we need to dig deeper. Facebook (FB), he notes, is a PC company, not a post-PC company. Advertising structure for the site was meant to be integrated as another "column" on the already overwhelming Facebook news feed. I agree with Laffont; smartphones and tablets will erode this per-click advertising scheme as websites pair-down their viewable space.
Facebook and Yahoo (YHOO) need to account for this by expanding their platforms. Expanding each company's universe comes in different forms: Yahoo partners with a variety of news services, while Facebook is in the process of acquiring Instagram for $1 billion. Yahoo's move to hire a Google advertising exec was a step in the right direction (the election of hedge fund manager Dan Loeb to Yahoo!'s board or directors likely catalyzed this). Propelled with decent second quarter earnings, a new advertising structure might help the company cope with the hardware crunch Laffont describes.
(2) Tablets and smartphones are a true twofer. What does that mean? First, as Laffont notes, with a tablet and a number of smartphones, you require neither a printer nor a netbook for both daily business operations and personal use. Tablets will thus impact secular trends both in printers and laptops.
Second, Laffont indicated that these products are undergoing a form of commoditization. People will begin, on the one hand, to purchase these products regardless of the macroeconomic environment. On the other hand, the price of these products will begin to decline. Apple is expected by many tech insiders to maintain its lead in the tablet market until 2017. But the market will become more competitive. For Apple, how long will consumers pay over $499 for an iPad when Kindle Fires and Google Nexuses await at $199? An iPad mini might be an odd idea, but it would give Apple an entry into this price point. Luckily, it dominates the higher-end market.
Laffont indicates that smartphone sales might triple for Apple over the next few years: "There [are] two billion cell phones out there. Apple is presently selling 150 million of them. They could easily triple or quadruple that number." Cell phones are a slightly different story, since cell phone companies tend to subsidize cell phones (at least for now). This puts the iPhone on a similar price-point footing with Google's Android devices. The Windows 8 release might also be a game-changer in this area. Nevertheless …
(3) … Apple is still king. "Sometimes the best stocks are the most obvious," says Laffont, and he considers it a $1 trillion to $1.5 trillion company. He compares Hewlett-Packard (HPQ) to Eastman-Kodak (EKDKQ) (gasp), agreeing with Jim Chanos' diagnosis of the company at the Delivering Alpha Conference (Chanos announced that he is shorting the company). Again, HP is a printer and PC company, the two businesses that Laffont sees secular decline in for the future.
I think his optimism makes good tech sense. Apple has integrated all of its devices together with iCloud -- an effective relaunch of the failed MobileMe -- incentivizing the purchase of a "family" of products rather than a single isolated unit. Other companies, like Google and Microsoft, have been prohibited from doing this because they lack combination of proprietary hardware, software, and cloud computing interface. Microsoft (MSFT) has had problems with hardware partnerships, symptomized by its move last month to announce the Surface tablet, which I view as a slap on the wrist for Microsoft's hardware developers. If Windows 8 does not have an attractive launch, Microsoft might see less than 6.5 percent market share as a tablet OS provider (it presently has 3 percent market share).