*from www.tech.fortune.cnn.com, April 23, 2013 (To view original article click here.)
Take Away #1: Companies that dominated tech even a decade ago can appear to be aging quickly.
Key Facts and Figures:
- At its heart, the tech industry is about the new.
- Today, tech giants succeeded because of what was new yesterday.
- The flipside is that the new ages into the old more quickly in tech than in most other industries.
- This is the picture of the tech industry after a week of earnings reports.
- Tech giants like Intel (INTC), Microsoft (MSFT), and IBM (IBM) are struggling to manage older businesses in decline even as they push into promising new areas like cloud computing.
Take Away #2: IBM has seen its stock decline 9.3% since it reported first quarter earnings last week.
Key Facts and Figures:
- IBM, a 101-year-old company, sold its PC business in 2004 in an effort to move into higher-margin software and IT services businesses.
- It’s growth since then has made the stock a favorite among tech investors.
- Despite that, IBM is still struggling with aging businesses, as revenue at the company fell 5% last quarter from the same quarter a year earlier to $23.4 billion, below analyst forecasts.
- Much of the disappointment is centered around hardware, inclduing servers based on x86 architecture that, like PCs, have become low-margin commodities.
- Some reports suggested IBM may sell its x86 server business to Lenovo (LNVGY), the company that bought its PC business years ago.
- IBM was one of the big companies to move early into cloud computing, and yet as companies finally embrace the cloud, that transition is hurting IBM’s older business.
Take Away #3: That paradox is also evident in Microsoft’s most recent quarter.
Key Facts and Figures:
- Under CEO Steve Ballmer, Microsoft has built up a solid enterprise division of Office, Sharepoint, and Exchange, which makes up 31% of its sales.
- Xbox and other entertainment products make up another 12% of sales and servers still another 25%.
- For the most part, most have been seeing modest growth in revenue and operating profit.
- However, most investors seem focused on the 25% of revenue that comes from its Windows division.
- Its stock fell after two independent research firms showed PC sales falling more than 10% last quarter.
- Microsoft ended up reporting a 23% rise in Windows revenue, thanks largely to deferred revenue from sales in earlier quarters and its own surface tablets.
- Ballmer envisioned Windows 8 as a way to pull Microsoft away from traditional PCs into tablets and smartphones.
- However, positioning Microsoft for new markets is accelerating the decline in demand for PCs that are the core of Microsoft’s traditional markets.
- Like IBM, Microsoft has been for years preparing for an enterprise market moving into the cloud.
- The business software division, currently the largest in both revenue and operating profit, includes Office 365, and saw revenue grow 8% last quarter.
- Office 365 is the cloud-based version of that long-time cash cow, Microsoft Office.
- Microsoft’s stock has risen 7% since its earnings last week.
- While some remain bearish due to uncertainties in the PC market, others remain optimistic citing the positive of Microsoft’s overall opportunity around cloud, mobile, and Windows 8.
Take Away #4: In a way, Intel is also steering its business away from chips in traditional PCs and toward the cloud with chips that power the data centers, the not-so-ephemeral substance of the cloud.
Key Facts and Figures:
- Intel’s stock initially dropped on an earnings report that fell slightly short of analyst estimates but has since rallied 6%.
- PC chips still account for 64% of Intel’s revenues.
- That figure has declined from 69% two years ago as Intel pushed into new businesses like server chips powering data centers and software and services to enhance the chips’ performance.
- CEO Paul Otellini stressed that the company remains at the forefront of innovation and semiconductor design.
- With 100 million 22-nanometer processors shipped so far, Intel is also focused on making 14-nanometer chips.
- However, Intel is still focused on making better chips for faster ultrabooks, which is still a declining market.
- Some analysts are still concerned about Intel’s reliance on a declining PC market, despite its new chip architectures.
- In a report, Doug Freedman at RBC Capital said he was skeptical such new designs “will drive a revival of newer initiatives including touch and ultrabook in the PC marketplace.”
- Instead, Intel is likely to keep shoring up its stock with improving cost structures and paying dividends, said Freedman.
Take Away #5: One of the dilemmas of tech is that success, if defined by dominating a core area of business, is so fleeting.
Key Facts and Figures:
- The same companies that rode the rise of the PC and server markets may enjoy large market caps and ample cash, but are also chained to those same markets in decline.
- As IBM, Microsoft, and Intel show, there is no single, simple answer to that dilemma.
*To view original article from www.tech.fortune.cnn.com click here.