The technology sector had some bombs in the most recent quarter. The three biggest that come to mind were Microsoft Corporation (NASDAQ:MSFT), Intel Corporation (NASDAQ:INTC), and Broadcom Corporation (NASDAQ:BRCM).
Performance of the group
Source: Ycharts
Microsoft Corporation (NASDAQ:MSFT) declined by 8.65% in the past month. Broadcom Corporation (NASDAQ:BRCM) managed to turn some heads with an 18.89% decline in valuation in the past month. Intel Corporation (NASDAQ:INTC) declined by 4.09% as its poor performance was largely pardoned. I think there’s a much weaker story at play, with Intel Corporation (NASDAQ:INTC).
Microsoft
Investors were largely unimpressed by the company. The biggest bummer was the company’s guidance.
Next quarter’s guidance indicates that demand for desktop PCs and the Xbox 360 will go down. The company may be able to offset its weaknesses in those businesses with strength in servers, Microsoft business (Office 365), Skype, and Bing/MSN. The transition to Office 365 has had a negative impact on earnings, which is why Microsoft Corporation (NASDAQ:MSFT) reported such a weak quarter. Analysts were expecting Microsoft Corporation (NASDAQ:MSFT) to generate earnings of $0.75 per share for the quarter; the company actually reported $0.66 in earnings per share for the quarter.
This weakness in performance seems short-term. I believe that the company’s server business will continue to grow. Microsoft Corporation (NASDAQ:MSFT)’s software as a service and cloud solutions should continue to grow as well. I also believe that the entertainment and device business should be on a strong path to recovery once the Xbox One is released. The Xbox One is priced higher than Sony’s PlayStation 4, making it more profitable.
The transition to Office 365 will have a positive impact on earnings after about a year. PCs could be due for a refresh once Microsoft Corporation (NASDAQ:MSFT) ends support for Windows XP as well. Businesses love Windows XP, but the lack of product support may cause a transition to Windows 8. Given enough time, I think Microsoft will generate higher rates of net income growth (in the upper single digits at least).
Intel
Intel Corporation (NASDAQ:INTC)’s biggest problem is the server segment. This weakness in performance is likely to persist as infrastructure needs are continuing to drop. Companies like Facebook and Google are able to operate their websites using fewer servers because servers have become more powerful. Five years ago, supercomputers and mainframes were far less powerful, forcing web giants to invest more capital into information technology. Today, infrastructure spending has lessened significantly.
Most of the growth in the cloud is being driven by software-as-a-service rather than infrastructure-as-a-service. This is why IBM and Oracle have been coming up short in recent quarters. There are only so many software ideas that are implementable across business and government.
The awkward thing about servers is that upgrade cycles have less of a positive impact on earnings. Given enough time, companies may figure out a tangible need for faster processors. With the vast majority of the cloud being centered on basic web programs and web pages, however, server demand may not increase by as much.
Broadcom
Broadcom Corporation (NASDAQ:BRCM) is a semiconductor company that focuses on chips that allow for wireless communications in the home and on mobile devices. The company offers chip designs for modems, smartphones, and near-field communication technologies. The company also generates revenues from patent licenses as well. The company’s rich collection of technologies has allowed it to grow revenues.
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Fast forward a year and Amazon’s new CEO Andy Jassy described generative AI as a “once-in-a-lifetime” technology that is already being used across Amazon to reinvent customer experiences.
At the 8th Future Investment Initiative conference, Elon Musk predicted that by 2040 there would be at least 10 billion humanoid robots, with each priced between $20,000 and $25,000.
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107 Amazons
140 Metas
84 Googles
65 Microsofts
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