Everyone following closely the recent high-tech rally cannot help but notice three leading companies that missed the rally, Intel (INTC), Microsoft (MSFT) and Hewlett-Packard (HPQ). Intel and Hewlett-Packard are down close to 12 percent for the quarter; Microsoft is flat, while NASDAQ (QQQ) is up close to 10 percent. What's behind this lackluster performance?
Certainly each company has its own issues. Hewlett-Packard, for instance, has leadership issues, while Microsoft continues to struggle with regulators, especially in Europe. But all three companies do have one thing in common. They missed out on the transition from the PC-world to the mobile device world. Intel's case is indicative.
For years, I have been an admirer of the company. I considered it a model of innovative company in my Business Strategy seminars. I raved about the stellar performance of its stock in my investment classes. I traded its shares on the long side of the market. Recently, however, I have been disappointed with the company and its equity performance. Though it continues to be an innovative powerhouse, it seems to have missed out on the transition from a PC to a mobile devices world. Perhaps, Intel has been too busy following its partner Microsoft, which has also missed out on this transition. Two months ago, Intel lowered its 3rd-quarter revenue guidance by 7.7 percent, citing a "challenging macroeconomic environment." Does this statement ring any bells?
If my memory is correct, that's the statement Cisco's (CSCO) CEO John Chambers used in the early 2000s to describe a slowdown in the company's growth in the aftermath of the dot.com crash. The trouble, however, is that 10 years later the dot.com crash is distant memory, but Cisco has yet to regain its growth momentum. This confirms that Cisco's problem wasn't macroeconomic but microeconomic, as I discussed in a previous piece.
Qtrly Rev Growth (yoy)
Qtrly Earnings Growth
FYE Dec 31, 2013
To be fair, Intel is indeed facing a sluggish world market environment at this point, especially in Europe, which is in a recession. The same is true, however, for Apple (AAPL) and Qualcomm (QCOM). Yet the two companies are thriving, especially Qualcomm, which cannot produce fast enough because it rides the right trend - it is in the right business at the right time. Intel has been trying to catch up, but not fast enough.
The bottom line: Intel's, Microsoft's and Hewlett Packard's problems are structural rather than cyclical. That's why I will stay away until I get better visibility on their product pipeline.
Disclosure: I am long QCOM.