Most of the names in the technology space have reported their quarterly numbers and the results have been disappointing. Growing competition is squeezing margins and a drought of new product launches has left investors with little to get excited about. Here’re are the top three takeaways from the second quarter.
The death of the PC
The dire fate of the PC industry is old news. Ever since the arrival of the Apple Inc. (NASDAQ:AAPL)’s iPad, the Wintel empire has been under siege from the rise of mobile devices. Numbers from research firm IDC and Gartner showed global second quarter PC shipments fell 11% year-over-year dragged down by sluggish demand in China and Europe.
But what we did learn this earnings season is just how difficult the transition to mobile has been for the old tech guard.
Microsoft Corporation (NASDAQ:MSFT) took a $900 million write-down on its Surface RT tablets. The poor launch was blamed on a memory hogging operating system, a high retail price, and lack of apps. The company is also struggling to gain much traction in smartphones. According to May data from COMSCORE, Inc. (NASDAQ:SCOR), Windows has carved out only 3% of the U.S. smartphone market.
Intel Corporation (NASDAQ:INTC), the world’s largest chip manufacturer, backtracked its earlier sales guidance. After projecting growing revenues despite its declining PC business, management now expects sales to remain flat this year. The restatement is an admission that Intel Corporation (NASDAQ:INTC) chips aren’t making their way into smartphone and tablet devices. Manufacturers haven’t made the switch because Intel Corporation (NASDAQ:INTC)’s Clover Trail product doesn’t offer a significant cost advantage over rival ARM Holdings plc (ADR) (NASDAQ:ARMH).
Mobile is the future and the old guard can’t adapt.
Mobile is dead
Wait…what? Yes, early signs suggest the mobile device boom is coming to an end.
Samsung’s earnings guidance fell short of analysts expectations. Investors are raising doubts that the company will be able to maintain its rapid growth rate and are concerned that higher marketing costs are eating into the company’s margins.
Apple Inc. (NASDAQ:AAPL)’s iPad sales dropped 14%. And while iPhone unit sales shattered the Street’s expectations, the average selling price of each phone dropped significantly as consumers gravitate to the company’s older iPhone 4 rather than its flagship iPhone 5.
This is classic late adopter behavior where consumers choose lower priced devices over new features and quality. It’s evident that we’re entering into the second phase of the smartphone product life-cycle, which is typically marked by falling growth rates and paper thin margins.
Second-tier players without well defined product ecosystems are struggling even worse. Nokia Corporation (ADR) (NYSE:NOK)‘s revenues fell 24% year-over-year. BlackBerry Ltd (NASDAQ:BBRY) sold only 2.7 million BB10 devices which fell well short of Wall Street’s low expectations.
Based on this troubling trend, investors should avoid hardware companies and focus on names with services and apps that can profit growing mobile traffic.
No one has figured out mobile
That is if the technology giants could get a handle on mobile advertising.
Google Inc (NASDAQ:GOOG) reported a disappointing quarter with cost-per-click rates – an indicator of how much an advertiser pays every time a user clicks on an ad – falling 6%. This marked the seventh consecutive quarterly decline in the company’s cost-per-click metric. This drop is mostly due to the growing shift to mobile where ads sell for 40% less than desktop searches. What’s troubling is that these declines are accelerating in spite of the company’s revamped mobile strategy.