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Microsoft Corporation (MSFT), Google Inc (GOOG): Tech Giants Fall

Intel Corporation (NASDAQ:INTC)’s PC division saw revenue fall by 7.5% to $8.1 billion. According to IDC Intel supplies 9 out of 10 PC based chip servers, but less than 1% of smartphone processors. In order for me to turn bullish on Intel Corporation (NASDAQ:INTC) I would have to see it move aggressively into the smartphone market.

If it did, it would be able to compensate for the drop in the PC market and the stagnation it saw in server chip sales, which grew by less than 1% to $2.7 billion in revenue. On the plus side, Intel Corporation (NASDAQ:INTC) does control 6% of the tablet market according to Strategy Analytics, and the tablet market is growing faster than the smartphone market.

I have a hold rating on Intel, as the declining PC market won’t turn around for at least 2 years and it has yet to gain a strong enough foothold in either the tablet or smartphone market for me to be bullish. It does, however, pay out a nice 3.9% dividend and trades at a PE of 12.3, but with the PC side of things dropping earnings heavily, I would stay away from Intel right now.

Search this

Paid clicks up 23% for the quarter, but the cost per click was down 6%. This made investors fear that Google Inc (NASDAQ:GOOG)’s growth rate was slowing down and sent shares down a bit. Google’s revenue was up 19% to $11.1 billion (missing estimates) and income was up 16% to $3.23 billion, or $9.54 per share (missing estimates).

The reason why Google Inc (NASDAQ:GOOG)’s cost per click was down 6% this quarter and 2% last quarter is because of its switch to mobile. Mobile clicks cost 40% less than those on a PC. One bullish bit in Google Inc (NASDAQ:GOOG)’s earnings was that the 23% increase in paid clicks was more than the 19% estimated. If Google can keep increasing the total number of paid clicks then it can balance out the drop in the cost per click.

The paid clicks are when someone clicks on an ad sponsored by Google, such as by a travel site that is advertising on a site related to Hawaii. The cost per click is the price that advertisers pays Google Inc (NASDAQ:GOOG) for each click Google generates. If the cost per click goes down, then Google has to compensate by increasing the total number of paid clicks.

Google Inc (NASDAQ:GOOG) trades at a hefty 26 PE but at a more reasonable forward PE of 17.5. If you look at this quarter, you may think Google will more likely have a forward PE of 20-25, but if you look at Google’s past 9 earnings releases it has only missed twice. Google is a fairly consistent performer and could see its stock hit $1,000 by the end of 2013.

As more smartphones running Android are sold, the number of paid clicks will increase as Google’s Mobile OS is very closely entwined with its search engine. Looking at first quarter IDC numbers, there were 162.1 million Android smartphones shipped, which is a huge gain on the previous year of 90.3 million smartphones shipped.

Going forward, Google has the Moto X, a smartphone being launched by Motorola (which Google bought for $12.4 billion) later in the year. That, combined with more info on Google Glass and more paid clicks should drive Google to $1,000 by the end of the year. Bullish on Google.

Final thoughts

It seems that the theme of tech this earnings season was dread from plummeting consumer PC sales. Microsoft’s business side of things held up nicely, Intel has a chance to move into mobile, and Google grew total paid clicks more than expected, but was blindsided by a drop in paid click costs. As long as PC sales continue to slide, Microsoft and Intel are going to keep seeing their stock prices in the doldrums or falling.

Mobile is the way out, which is why Google is heading for $1,000 a share. If Microsoft and Intel can find a way into mobile then they too will have a big chance at success. Microsoft also needs to focus on its cloud offering and business side of things, as that has done very well over the past few years and should continue to do so.

Callum Turcan has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google and Microsoft. Callum is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Tech Giants Fall originally appeared on Fool.com is written by Callum Turcan.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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