Hewlett Packard's CEO came out today and gave some poor earnings guidance, which drove the stock down 12% to lows not seen even during the financial crisis. Dell also down 5% today and now at a 3 year low.My question is to those knowledgable of industry dynamics, partly because I have positions in STX and INTC and wonder if there will be collateral damage for these companies? I ask because right now it looks like HPQ and Dell are trading like they're heading to the way of newspaper companies. All thoughts are welcome.
All thoughts are welcome. Well, I don't really think of HP as a PC company.They make lots of them, but it's inconsequential to their earnings.That rather raises the question of what they do do, but I don't think they're too sure either.Be that as it may, my main insight is that in any industry there are some people inthe broad supply chain and ecosystem that make good money, and others that don't.In the PC business the general rule has long been that the company thatassembles the box and puts their name on the front doesn't make money.Dell was a shining exception for a number of years, but perhaps no longer,and perhaps the rule is pretty much universal now.But that doesn't mean that other firms in the industry can't and don't do well.Look for the guys with the ROE without leverage. High, and not falling on trend.You'll find them even in the air transport industry—just not at the airlines themselves.In computing, it seems to me that Intel and the disc makers are [still] good at capturing value.System integration consultants have traditionally done very well, from EDS back when to IBM now.A very interesting article on the factors that sometimes prevent the most visiblepiece of an industry from capturing much of the value, with the example of airlines.http://investorsanthology.blogspot.ca/Highly recommended reading.Jim
In my opinion, HP traded down so sharply today primarily because a true "recovery" for the company appears to be out into 2015 based on management's comments during the investor day. That is an eternity for most investors and especially for managers evaluated against a benchmark each quarter or year. I'm not sure what to make of HP and have spent the past year (thankfully) lowering the target price I set for a possible buy. I feel much like I did following RIMM during its long decline. Both seemed cheap on a trailing basis and even forward numbers were enticing. Successful value investors were involved. I don't think there is much left of HP's "brand" anymore and doubt anyone would pay a premium for a box with HP on it. I'd venture to say that the only premium pricing power that exists anymore in computers is associated with the glowing Apple logo.I like to follow the data and numbers and avoid emotions but when my gut tells me to pass, I don't argue. I owe a debt to Warren Buffett for the "no called strikes" analogy which has saved me more money than I've missed in lost opportunities over the years.
A very interesting article on the factors that sometimes prevent the most visiblepiece of an industry from capturing much of the value, with the example of airlines.http://investorsanthology.blogspot.ca/Highly recommended reading.That is a very good blog. It's a pity there haven't been any new articles in 2012.
Dell makes poor quality products for what has essentially become a commodity product market -- PCs.Dell is a confusing company. I no longer own any stock in the company, though I did own some, profitably, in the late 1980s and early 1990s. At that time they had a short-term moat with their just-in-time management of production that few others in the PC business were doing. And they really did custom build a machine for you. The also had excellent customer service, both marketing and technical.Not any more.Now their competitors do just in time production too. And none of them really custom build any more. It got so that I built my own computer in late 2003, early 2004 because I could not find a machine that I wanted with the quality level of component parts I wanted. After almost 10 years that one bit the dust from either age (it ran 24/7 the whole time), or the turn-on surge after Sandy.I did not really want to bother building a new machine, and my needs now are reduced compared to what I needed back then. I looked around and it seemed that the Dell Precision series (T7600 in my case) would do the job and be well built with good components. Of course it is priced somewhat higher than their Chinese ones for the (formerly?) mass market customers. Their marketing is only fair, and fortunately, I have not needed technical service.https://www.dell.com/us/soho/p/precision-t7600/fsSo if you want a desktop PC and do not want to build it yourself, you can go with Dell, but be careful what you get, and expect to pay for it. And I would not buy stock in the company these days. It is mostly a commodity market and Gresham's law certainly applies.
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