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Google Inc (GOOG) & Apple Inc. (AAPL): Tech Firms Need to Watch out for Watchdogs

Google Inc (NASDAQ:GOOG)Google Inc (NASDAQ:GOOG) Glass was recently revealed, and concerns about privacy problems look to be getting worse. The concerns surround the digital eyewear’s ability to record, and this continues to plague the company, though the gadget is still in its beta testing phase.

The European Commission said it is worried about the device’s ability to film and record audio of people. Ethical issues encountered by the company could stall plans, as Google Inc (NASDAQ:GOOG) will have to either alter the equipment if it is in fact being used to break privacy laws, or not release the gadget at all. That has major implications for the company’s future revenue-generating potential. However, for the time being, the firm is very healthy and may not need the boost from the Google X project.

However, while those projects look to bring Google Inc (NASDAQ:GOOG) a slew of new revenue if they become mainstream, investors should be cautious. Google trades at about 27.5 times earnings. I am cautious about this because the cost per click in its advertising business is on the decline, and that segment drives the largest portion of the firm’s revenue. About 90% of sales are from advertising, so that makes initiatives with Google X less important, and may only act to inflate the company’s share price. For this reason, I keep Google Inc (NASDAQ:GOOG) out of my portfolio.

Other tech firms watching out for ‘big brother’

A couple Google competitors that are treading carefully due to watchdogs include Apple Inc. (NASDAQ:AAPL) and Samsung.

Apple CEO Tim Cook presented to congress on May 21 to justify his company’s tax strategy. The firm’s subsidiary based in Ireland allows the company to pay a lower tax rate than in the U.S. However, Cook said the firm pays taxes to the U.S. government on revenue that it generates in America.

The presentation to Congress was a very public example of Cook’s ability to realize maximum profits with as little interference as possible. However, his skills have also been needed behind the scenes. That has helped the firm develop the highest return on equity in the computer hardware industry. The company’s profit margin is nearly 23.5%, and it has an asset turnover of 97.8.

But Apple Inc. (NASDAQ:AAPL) needs to expand in emerging markets if it wants to continue growth. The developed world is at near full saturation in the smartphone segment, which means Apple needs a lower priced smartphone to sell abroad. Apple Inc. (NASDAQ:AAPL) is rumored to be working on a $100 smartphone that could be affordable to those in developing nations, and I’d buy shares of Apple now when it is cheap, before it starts to really take hold of that market.

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