Annex Bulletin 2012-02 February 9, 2012
A partially OPEN edition
Oracle Runs Out of Oracles (Analysis of latest quarterly results)
Updated 2/09/12, 10:30AM HST
Analysis of Market & Business Performances of Top Global IT Companies
Apple Leaves Everybody in Dust
Meet new king of IT; Microsoft leapfrogs over IBM, Google also behind
But is Apple "killing the goose that laid the golden egg?"
HAIKU, Maui, Feb 9, 2012 -
Now that the year-end earnings
season is over, we thought we'd try to take stock of the health of the
industry leaders and see who is leading and who may be faltering
Steve Jobs would
Underneath the obvious market valuations, however, there are some interesting trends that are brewing under the surface. One of them is that Wall Street seems to expect the "old guard" IT companies to stage a comeback this year. Take a look at the above P/E Ratio Change chart. Microsoft, Accenture, CA, Dell, Cisco and Intel are at the top. Even HP appears better positioned than Apple, IBM, Yahoo or Google.
Of course, that's because the industry leaders have already experienced a significant appreciation in their respective market caps. Which leaves the "old guard" look like the future up and comers.
The actual earnings picture is slightly different. Overall average of the top 15 global IT leaders is up 8% on an annualized basis since the last time we checked in December. So business is good. And in some cases, it is exceedingly good, as you can see from the charts below.
SAP and Apple are thriving, up 37% and 36% respectively. EMC, CA are also growing in double digits. The rest, well, the rest are all BELOW average. If we were to add to this chart the results of the telecom companies, the gap between the "have's" and the "have not's" would be MUCH greater.
That's because while the iPhone is making Apple richer than God, it is also killing the companies that sell it - the telecoms (see Apple iPhone Success Strangles Profits At Sprint, AT&T, Verizon). Sprint, for example, just announced a loss of $1.3 billion, widening the red ink from a year ago by a considerable margin. AT&T and Verizon are also losing money on their best selling product. Worse, because the iPhone is a hog when it comes to data transfers, it is forcing the telephone companies to spend even more money to expand the bandwidth of their networks.
So this may be the classic case of Apple "killing the goose that laid the golden egg." Which begs the question: How long can Apple's leadership last? For now, the answer is as long as the phone companies have enough cash to spend and their shareholders enough patience to stomach the losses. When either of those two run out, Apple had better be ready with a "Plan B." Which means lowering the wholesale price at which it sells the phone to the telecoms. Which means lower profits. Which means lower stock prices.
Or, the phone companies will have reduce their deep discounts for iPhones which will kill the market for them. In which case everybody loses. So this is not a likely scenario.
Get the picture? The telecoms are Apple's boots on the ground. In order for a business arrangement to succeed in the long run, it must be a "win-win" deal. Currently, it is clearly a "win-lose" deal. Apple wins. Everybody else loses. That is not a sustainable business model in the long run.
So no matter how many gazillions iPhones or iPads consumers are willing to buy at the current prices, something is going to have to give in the future. And that "something" is looking like the Apple stock price. So for those with strong stomachs, this may not be a bad time for a shorting this stock.
Happy bargain hunting
Happy Birthday, IBM! (IBM to turn 100 on June 16; what's the secret of its success?)
Apple Falls from Tree to Cloud, Then to Earth... with a Thud (Last major holdout joins race to cloud, but falls flat on first attempt)
Annex's 33rd Birthday (May 15, 2011)
Big Blue "Rock of Gibraltar" Stands (Analysis of IBM's first quarter business results)
Wall Street's New "Rock of Gibraltar" (Annual update to our 5-yr IBM forecast)
HP: Ghost of EDS Haunts HP (Analysis of HP's first quarter 2011 business results)
Case Makes a Case for Innovation (Analysis of new "Startup America" program)
HP: New Broom Sweeps Clean (Apotheker fills our first prescription in board shake-up)
IBM: Another Phoenix of the IT Industry , Analysis of IBM's 4Q10 result
One Man's Pain, Another Man's Gain? (Analysis of possible impact of Steve Jobs' health on IBM, Intel, other IT companies)
Consumer Rules (Analysis of top 15 global IT leaders' stock and business performances)
IBM Hardware to Rise and Shine Again (Analysis of IBM STG business results and outlook)
BARRON's: IBM Shareholders Will Like New Year (Analysis of Barron's article on IBM stock)
HP's "Stealth CEO" Sounds Bullish in First Public Appearance (Analysis of HP's fourth quarter business results)
Silicon Valley Rodeo (Editorial on shenanigans and costly trivial pursuits)
IBM Business Up, Stock Down (Analysis of Big Blue's third quarter business results)