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Alex Filonov
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I was born in 1956 in USSR. After graduation from college in 1979 I worked full-time as an IT specialist. Until 1990 I worked for different companies in the Soviet military industrial complex. I created a small software business in 1991, which failed in 1993. I worked for Oracle Corp in 1995 in... More
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Muddling Investor
  • Tablets Are Coming 0 comments
    Oct 25, 2012 12:22 PM | about stocks: ARMH, VMW, RHT, INTC, MSFT, DELL, HPQ, GOOG, AAPL

    I didn't believe it. To me, tablet is a bad computer, no keyboard, no big storage, you can't see two applications on the screen at the same time. Unfortunately, as an IT professional, I made a big mistake. I thought that everybody is thinking like me. They are not.

    Most people (even most IT professionals) use PC in one window mode. I have no idea how they manage it, especially when you need to look at two applications at once. But they do. Most people are not good with a keyboard (I can type with 10 digits, they don't). And most people don't care where they keep their data. Whether it a hard disk or cloud storage, doesn't matter. Data is there somewhere, that's it.

    So, for the most people, tablet is a very good tool. Much smaller than a computer, much cheaper to maintain, much more reliable. Every Windows user I know had to completely reinstall OS every 2-3 years, or pay hundreds of dollars to somebody to do it, because of viruses and other malware. It's not a problem with tablets, not for now. Probably not for future either, because tablet OS, be it iOS or Android, based on much more reliable UNIX or Linux kernel.

    Another plus of a tablet: it's portable. It weighs below 2 pounds, very thin, battery works for many hours. You won't find laptop computer as portable.

    Until lately, I thought that tablets are not going to get into enterprise. Boy, was I wrong! They are popping everywhere! The most unexpected place? I went to the dealership to service my car. Half a year ago advisers still had PCs on their desks with some terminal software. Now they have Samsung Galaxy 10.1 tablets. With a keyboard and a stylus. And they don't look unhappy with this change!

    Does it mean death of PCs? No, of course not. Mainframe computers are still around, so will be PCs. There are a lot of applications which need more resources and options than tablets can provide. PCs are going to be in the enterprise for a long time. But their share will be diminishing. PCs at home? Honestly, I don't know. They might hold on for a while. But eventually they are going to become a niche product.

    OK, what does it mean for investing? Paradigm shift. PC related companies are dead. Dell (NASDAQ:DELL), HP (NYSE:HPQ) are black holes. The whole PC infrastructure is not investable. Forget about Microsoft (NASDAQ:MSFT).

    There is a big question about Intel (NASDAQ:INTC). It's going to lose a lot of sales of low end chips, used in PCs. But it's also going to sell more server chips, because tablets require cloud infrastructure. And all talk about ARM CPUs in the server is remaining just talk, for now. I'm going to hold my position for a while.

    Cloud related companies should be just fine. First of all, it's VmWare (NYSE:VMW) and Red Hat (NYSE:RHT), which create software used in cloud infrastructure. Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN) will be fine too, they provide clouds. Of course, it's not the main source of income for either of these companies. As for tablet manufacturers, it's a big question. Apple (NASDAQ:AAPL) is a winner on retail front, but it has a lot of moving parts and company is way too big now. Other tablet manufacturers, like Samsung, HTC and Acer, are not listed on US exchanges. ARM holding (NASDAQ:ARMH) is a winner here, because every tablet (and every smartphone and almost every smart device) has ARM based CPU inside. I am not sure about other component manufacturers.

    One remaining question is software. Who is going to be a leader here?

    Disclosure: I am long ARMH, INTC, VMW, RHT, GOOG.

    Additional disclosure: I have no positions in DELL, HPQ, MSFT, AAPL. Positions can change any time.

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