The technology landscape is currently in major transition. From an era dominated by the desktop PC to one where smartphones and tablets are becoming an increasingly integral part of consumers lives and also where hard disks and memory cards are very slowly being replaced by the concept of “cloud computing”.
Investors in technology stocks cannot ignore these mammoth changes. This quarter’s results from Intel, Microsoft, HP and Dell illustrate that for businesses reliant on shifting lots and lots of desktop PC’s things are getting tougher and this trend is only likely to continue as the concept of mobile computing gathers pace. For example, Google announced a new Chrome book computer last week selling for only $250, designed predominantly to allow users to access the internet unencumbered by unnecessary hardware.
Nimble UK based chip manufacturers like Imagination Technology and ARM have exploited the shift to these new type of devices away from the traditional manufacturers like Intel and Advanced Medical Devices. For Intel, the easy days of selling millions of chips to the likes of Dell, Lenovo and HP to satisfy PC demand are definitely coming to an end.
The success of the Iphone and Google’s Android mobile operating system has revolutionised the way that consumers are able to access and utlilise the internet on the go. Who would have thought a few years ago that Apps would be able to deliver mapping, newspapers, social media and email in a hand held device?
“Cloud” is the new buzz word. Being able to store data such as music and photos virtually in a third party data centre allowing you to access it on any device without carrying around bulky disk drives was in the past impossible because of slow internet connections. With the advent of new super fast 4G internet, that dream is close to being practical. Services like Google Drive, Apple’s iCloud, Amazon Cloud Drive and Dropbox are exploiting this trend. For example, the newly release Amazon Cloud Drive gives you 5 Gb of free online storage, allowing you to upload music to the Amazon servers.
Who will win in this new world? Certainly the stronger players in the digital arena are likely to benefit. Despite this quarters slip up by Google, in the longer term the company seems certain to thrive as long as its mobile advertising platform can successfully transition from its super profitable desktop to one where mobile ads make a similar level of return. With its leadership in the smartphone and tablet sectors, Apple is likely to remain instrumental as well as Samsung. For the winners of the old world – Dell, HP, Intel, Nokia, Research in Motion and others, the opportunities are clear, but will they adapt and survive? IBM remains a great example of a company that successfully changed its model from servers and PC’s to a highly profitable services business.
The social networking sector may look very different in a few years time too. Now we have Facebook and Twitter which has usurped the popular “Friendsreunited” and Myspace sites. What is cool and in vogue can rapidly change. If social web sites do not change with their users then they are also certain to wane. Facebook may have a billion users now, but Myspace was acquired for $580 million in 2005 by News Corp and now its nowhere!
The Nasdaq will look a very different place in ten years time too as it did 10 years ago, and predicting the impact of these enormous changes will be key to maximising returns in technology stocks for investors. Who would have thought a few years ago that Microsoft and Intel would change from growth to dividend plays quite so fast. One thing is for certain, the pace of change isn’t slowing down!
Contrarian Investor UK
The Master Investor Show 2020 tickets are now available. Join us at the Business Design Centre on Saturday 28 March 2020.
Book your FREE tickets today using code: MIBLOG