by Hilary Kramer | July 22, 2013 10:22 am
Technology is constantly changing, and while PCs were all the rage in the new millennium, they are going out while tablets are on their way in. Investors are looking for the next big trend and leaving the PC sector in the dust.
This sentiment was made loud and clear on Thursday, when the tech giants, Google (GOOG), Intel (INTC), and Microsoft (MSFT) all missed in earnings. Intel really disappointed investors when management admitted that in its latest earnings report that its PC chip sales sank 7.5% year over year. Since the company has a dominant share of this category – estimates going as high as 88% of all Apple and Windows desktops and laptops – it’s a pretty good sign that the market has shifted beneath the giant’s feet.
So now the question becomes this: Which stocks are going to be the leaders in a post-PC world? Although I wouldn’t recommend buying these stocks right now, I thought it would be fun to take some time to discuss the companies that have the potential to be the new “giants.”
The New Tech Trend
Tablets, the new tech craze, are poised to breakout, given their relatively low base and future prospects. Gartner’s analysts see tablet sales more than doubling between 2012 and 2014, at which point these devices will equal PCs in the numbers being shipped.
Intel is going to be forced down a tough path, having to fight competitors for a piece of the market share, which management largely ignored for decades in order to focus on maintaining its dominance in chips and the then-essential desktop environment.
However, I’m not counting out Intel just yet. The company has a chance to do what it takes to become a bigger factor in either or both phone and tablet markets. Rolling out its own operating system in partnership with Samsung should help make the case that its processors are relevant in mobile computing, provided of course that the system can win users away from iOS and Android in the first place when it finally hits the market.
Meanwhile, there are already plenty of leaders to evaluate. The unsung powerhouse is Qualcomm (QCOM), a stock that I actually recommended in my GameChangers service, and then sold for a hefty 62% profit. It’s been estimated that 49% of all new devices sold in the space is powered by its processors.
Right now, the stock is navigating choppy waters at 17X trailing earnings, but Wall Street is basking in growth near 24% this year and 10% in 2014. Today’s valuations may not adequately reflect anticipated expansion of the overall phone market.
If you’re looking for the next INTC, QCOM is one to watch.
Apple (AAPL) and Samsung are close behind, with 13% and 12% of new-to-market phones running on their chips while Strategy Analytics points to Spreadtrum (SPRD) as an underdog to watch. Unfortunately, SPRD just accepted a $31-a-share buyout offer from China’s state-owned Tsinghua Unigroup, so we won’t be seeing it for much longer.
The Stock to Watch Out For
One company I will be keeping a very close eye on is Samsung (SSNLF). This company makes the processors in 10% of the tablets currently being shipped, with NVIDIA (NVDA), Intel and a swarm of Asian chip makers adding up to the rest of the fragmented field. One up-and-comer here looks to be Marvell Technology (MRVL), with a product strong enough to get Samsung’s captive tablet unit to swap it in for its own processors.
I hate to say it, but it looks like PCs are slowly going the way of the dinosaurs. And when they’re gone, smartphones and tablets are going to swoop the rest of the way in and fill the void the PC sector left behind. One thing is certain: It will be fascinating to see the technology these companies come up with to stay one step ahead of their competitors — like controlling the devices by moving your eye.
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