Is your portfolio ready for the post-PC era?
It’s not as if desktop computers or laptops are going to die any time soon, but the classic PC has become a low-profit commodity item. What’s now driving growth and profits in the tech sector are new ways to communicate – tablets, smartphones, Internet-connected e-readers.
Some companies are taking advantage of the shift, others aren’t, and investors should pay close attention to the emerging winners and losers.
Apple Inc., which dominates the tablet market with the iPad, is a clear winner. Over the past three years, its revenue has surged from $42.9-billion (U.S.) to $156.5-billion, according to S&P Capital IQ.
Google Inc. is another victor. Its revenue has leaped from $23.7-billion to $50.2-billion over the last three years, as its Android operating system has built a commanding lead in the smartphone market.
Both companies are in my Strategy Lab portfolio and my personal holdings. I think they’re superbly positioned for the post-PC world, although in different ways: Apple makes most of its money on hardware, while Google derives the bulk of its profit from advertising. (It actually gives away its Android software to manufacturers as a way to drive users to its core apps, such as Gmail and YouTube.)
Both firms stand in stark contrast to Microsoft Corp., the classic PC-based company. More and more, the company that Bill Gates built is looking like an also-ran, which is why it does not appear in my Strategy Lab portfolio.
Microsoft still relies heavily on selling Windows licences to makers of standard PCs. This has become a slow growth business in the post-PC world and Microsoft’s forays into the mobile world have yet to produce much success.
The past few weeks have produced further evidence that Microsoft is losing ground.
Just look at what Hewlett-Packard Co. is doing. The world’s largest Windows PC manufacturer just announced a budget-friendly Android tablet called the Slate 7. It’s a tacit recognition that Google’s operating system is now too popular to ignore.
Yes, HP also makes a much more expensive Windows 8 tablet, which it says is ideal for business and government. But in the consumer market, HP is putting its weight behind Google’s Android.
And Google isn’t going to stop there. It also has another operating system called Chrome OS, which Samsung and Acer have used to manufacture a few low-cost notebook computers.
These machines appeal to people who want cheap hardware and care mostly about getting online, quickly and easily, with a browser, access to social networking and e-mail. All of Google’s services – Gmail, YouTube, Google Maps, Google Drive and so on – are built into these devices, which store documents in the “cloud” via Google Drive.
Last week Google did something to show us that its laptop ambitions move far beyond low end laptops. It unveiled the Chromebook Pixel.
The new laptop is expensive, at $1,299 (U.S.) for the Wi-Fi version and $1,499 for wireless connectivity using the latest LTE technology. But it’s a top drawer machine with lots of computing power and a super high-resolution touchscreen display. Even Apple hasn’t put touch screens on its Mac lineup yet.
Most people aren’t going to buy this product. But that’s because it’s today’s product with today’s price tag and today’s limited software options.
As more and more software moves to the cloud, I think it’s crystal clear that Google will eat away at Microsoft’s consumer market share just as Apple has been doing for years.
If Google opens its own retail stores in the months ahead, as many people expect, that may help convert additional customers to Chromebooks and similar devices.
To me, the post-PC era is not about the death of desktop or notebook computers. It’s about the hyper connectivity of people, using a wide variety of hardware connected to online services.
This is a market that Google dominates, and where Apple is doing very well. Microsoft? Not so much. Choose your stocks accordingly.
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