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business newsWhy It's Time to Dump PC Stocks
By
Michael Comeau
Jul 07, 2010 11:15 am
While most of the industry remains unoriginal, Apple's iPad shines light on tech's future.
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I go to Best Buy (BBY) today, and all I see are piles of look-alike junk made by companies that focus more on specifications than on making great stuff. The difference between product A and product B always comes down to megapixels and gigahertz and HDMI ports -- convenient distractions from how boring everything really is.
With the obvious exception of Apple (AAPL), all PCs do the same stuff in the same ways, and all pretty much look alike.
I could even say that about my Macbook. It blows away every Windows (MSFT) computer I’ve ever owned, but the reality is that it isn’t much different from the laptops of, say, 10 years ago. Battery life, durability, and looks have improved -- but its core nature as a clunky computing device hasn’t really changed.
Most of the innovation in functionality -- social networks, blogging platforms, cloud apps -- has happened on the other side, accessed through a browser that doesn’t look much different.
A New Hope
I'm a cynic, and I’ll be one 'til the day I die. But I do see hope for computers, and it’s in the form of the incredibly disruptive tablet.
I’ll admit -- it’s taken me awhile to really get why the Apple iPad is so important. I’ve admired its incredible sales performance, and I’ve had some fun with it at Apple stores. But it really is going to change everything.
Gen-One Observations
The first-generation iPad isn’t perfect. It could use a better selection of ports, an SD card reader, iPhone 4’s Facetime feature, and I’m sure plenty of folks want support for Adobe’s (ADBE) Flash technology.
But what’s great about the iPad? It’s incredibly easy to use, it boots up very quickly, and the battery can go pretty much all day -- three distinct advantages over virtually all PCs out there.
And again, this is just the first generation. The iPad is only going to get better from here, and judging from Apple’s amazing track record in mobile devices, the pace of innovation will put PCs to shame.
As it stands now, the iPad is basically a giant iPod Touch. But as its processing power increases, expect the standard mobile apps to be replaced by full-blown programs that equal what we see on our laptops. That would turn the iPad into a real computer replacement.
Does That Mean PCs Are Dying?PCs aren’t dying, but that’s not the point. The key takeaway is that the PC supply chain is being disrupted by the iPad, and that's a sentiment killer. The iPad is nothing like existing computers and that may explain why PC supply-chain stocks have been in the dumps this year despite a booming end market.
Sales of netbooks, a big PC industry growth driver in 2009, slowed immediately upon the iPad’s announcement. Correlation doesn't equal causation, but we're seeing the boys scramble to stay relevant in an iPad world.
Hewlett-Packard (HPQ) acquired Palm to gain control over the webOS platform, while other PC makers like Dell (DELL) are either cranking out tablets powered by Google’s (GOOG) Android mobile OS platform or planning to.
The Stocks
My PC bull market investment thesis has pretty much flopped, basically because I ignored the most important big-picture theme dominating the computing industry -- Apple’s incredibly disruptive momentum, which now includes the iPad.
And if I’ve been observant enough to identify that theme, I shouldn’t have been screwing around with lesser stocks in the first place.
Thus, I’m going to let my small Intel (INTC) call options position expire, and my Apple stock position will continue to ride.
Going forward, PC-industry stocks are dead money. The bull case for stocks like NVIDIA (NVDA) and Seagate (STX) will always sound very reasonable -- cheap valuations and strong industry unit growth. These are true statements, but they’ve been true for years, and the stocks haven’t reacted.
Tech investors always want the new thing because real technological disruption eventually drives stock prices. For example, Google helped Web users become searchers instead of surfers, and that hurt traditional Web companies like Yahoo (YHOO). You can also look at how server commoditization hit Sun Microsystems, and how the Internet is destroying traditional media companies.
Smart investing isn’t about fundamentals -- it’s about judging crowd psychology. The crowd only wants to care about Apple, not yesteryear’s PC blue chips. Don’t be left behind with these value traps.
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Position in AAPL, INTC
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