It seems fairly clear that Dell Inc. (NASDAQ:DELL) used to be the world leader in profitability in the PC industry, which makes sense as Dell has a reputation for world-class inventory management. However, both Hewlett-Packard Company (NYSE:HPQ) and Dell’s declines in sales are mirrored in their profitability as each is declining in their ability to produce profits from their assets. Meanwhile, Lenovo emerges as a leader, while still behind Dell Inc. (NASDAQ:DELL) in overall profitability, by growing both sales and profitability from its assets even in a declining market. More than brand or product, this may suggest great things about Lenovo’s management capabilities, a good sign for any investor.
Keep An Eye On The Peripherals!
While Dell, Hewlett-Packard Company (NYSE:HPQ), and Lenovo may be the most obvious ways to play the PC industry, Microsoft Corporation (NASDAQ:MSFT) and Intel Corporation (NASDAQ:INTC) are both strong, viable companies with a lot riding on the PC industry. For Microsoft, with Windows 8 widely regarded as a failure and its push to mobile seen as a side play compared to the efforts of Google Inc (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), and other major players, potential value depends on their ability to keep their Windows customers much happier. Currently, however, things are working fine for Microsoft Corporation (NASDAQ:MSFT) as it has produced a 27% Return on Equity and is up 17% this year.
On the other hand, Intel Corporation (NASDAQ:INTC) is down 7% this year and trades for 12x earnings. While Intel produced a 22% Return on Equity, it is having more success in mobile as it was recently announced that Samsung’s Galaxy models will be using Intel chips. Intel has no problems in the PC industry. Market share is growing and near its peak at 85% of the microprocessor market. That market leadership alone should validate Intel’s current price, but if Intel can monetize mobile, look for a higher share price in Intel’s future.
While investors are acting scared of the industry now, even a bad industry can be ripe with opportunities for investors brave enough to look.
Nikhil Shamapant has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Microsoft. Nikhil is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Finding Value in the PC Industry originally appeared on Fool.com and is written by Nikhil Shamapant.
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