The secular decline of the PC has been a major business and
technology story over the last few years.
The erosion of the PC market has triggered steep sell-offs in
the stocks of some of the world's most iconic tech companies,
including Dell (NASDAQ:
DELL
) and Hewlett-Packard (NYSE:
HPQ
). Over the last 5 years, DELL has lost more than 34 percent and
HPQ is down more than 61 percent.
Over the last 52-weeks, DELL has shed almost 22 percent and
HPQ has fallen over 40 percent. Overexposure to PCs and other
hardware, which has become a low margin, commodity business is
the primary reason for the struggles at both Dell and
Hewlett-Packard.
In recent days, a number of other companies that have exposure
to the PC market have released their quarterly earnings results,
shedding some light on how their business are performing.
Companies of note include Microsoft (NASDAQ:
MSFT
), Western Digital (NASDAQ:
WDC
), SanDisk (NASDAQ:
SNDK
), Advanced Micro Devices (NYSE:
AMD
), Logitech (NASDAQ:
LOGI
), and Intel (NASDAQ:
INTC
).
While Microsoft has been able to continue to grow its top-line
in recent years, margins at the company fell in 2012 along with
net income. Microsoft remains very levered to the PC market
through its cash cow businesses Windows and Office.
The company released its fiscal second-quarter earnings
results on January 24. Net income fell 4 percent to $6.38 billion
or $0.76 per share, compared to $6.62 billion or $0.78 per share,
in the year ago period. This came in slightly ahead of consensus
EPS estimates of $0.78.
Revenue was up 3 percent to $21.46 billion but missed
consensus estimates of $21.53 billion. Overall, the results were
not terribly impressive, but the company's PC-centric Windows
business grew 24 percent versus the year ago period. Furthermore,
Microsoft said that Windows 8 licenses were tracking above the
adoption rate for Windows 7.
Hard-drive maker Western Digital (NYSE:
WDC
) has had an interesting history. The company's stock trades at a
rock bottom multiple despite a terrific history of appreciation.
Analysts are estimating that sales at Western Digital will fall
almost 25 percent next quarter and 1.30 percent in fiscal
2014.
The company reported its second-quarter results on Wednesday.
Non-GAAP net income was $513 million or $2.09 per share, compared
to $358 million or $1.51 per share last year. Revenue was up to
$3.82 billion versus $2 billion in last year's second quarter.
This was ahead of analysts consensus revenue estimates of $3.68
billion. Shares of Western Digital are already up around 13
percent in 2013 and the stock continues to be a big-time tech
performer. Over the last 3 months, WDC has surged 40 percent.
Flash memory and solid-state drive manufacturer SanDisk
(NASDAQ:
SNDK
) has been hurt by falling revenue and margins over the last
couple of years. Nevertheless, SNDK is riding a strong uptrend
and is already up 14 percent in 2013.
The company reported a lower fourth-quarter profit on
Wednesday. Adjusted net income was $257 million or $1.05 per
share, versus $317 million or $1.29 per share, in last year's
corresponding quarter. Nevertheless, the results were way ahead
of Street estimates of $0.76. Revenues fell 2 percent for the
quarter to $1.54 billion versus $1.58 billion last year. This
slightly beat analysts' consensus revenue estimates of $1.53
billion.
AMD (NYSE:
AMD
) is another PC-centric company that has struggled mightily in
recent years. The stock is down almost 56 percent over the last
year. The company's most recent results were better than
expected, however, and the stock is up almost 19 percent in
2013.
The company reported a loss for the period, citing weak PC
demand as consumers are shifting to smartphones and tablets. AMD
reported a loss of $473 million or $0.63 per share, from $177
million or $0.24 per share last year. On an adjusted basis, the
company lost $0.14 per share versus $0.19 in the year ago period.
This beat analysts' consensus of a loss of $0.20. AMD guided for
a 9 percent, plus or minus 3 percent decline in sequential
revenue.
Logitech in another company with significant exposure to PCs.
The company sells PC peripherals such as mice, trackballs,
keyboards, interactive gaming controllers, multimedia speakers,
headsets, webcams and lapdesks.
The stock is lower on the year and LOGI missed Wall Street
revenue estimates when it reported on Wednesday. The company
reported a $1.24 per share loss on a goodwill impairment charge.
Adjusted net income was $16 million. Revenue fell 14 percent in
the quarter to $614.50 million from $714.60 million last year.
This missed analysts' consensus revenue estimates of $667.87
million by a wide margin.
Last week, the world's largest chip-maker Intel (NASDAQ:
INTC
) said that its fourth-quarter profit fell 27 percent due to a
sluggish PC market. Intel also missed analysts' revenue
expectations. The stock traded down in the wake of the results
and Intel has lost almost 21 percent over the last year. Adjusted
net income was $2.61 billion or $0.51 per share, versus $3.52
billion or $0.67 per share in last year's fourth-quarter. Revenue
fell 3 percent to $13.48 billion from $13.89 billion last year.
This missed consensus estimates of $13.53 billion.
Recent earnings results from PC-centric companies shows that
the environment continues to be weak, although some of the stocks
have done well.
Going forward, the PC market will continue to be cannibalized
by smartphones and tablets, causing many exposed stocks to trade
at very low P/E ratios. Companies such as Western Digital and
SanDisk show that it is possible to make money in stocks with
exposure to PCs, but the decline in the sector has been broadly
negative for most companies.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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