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High-tech vs. cheap-tech
An interesting viewpoint from an analyst firm about why HP is doing
well, Dell is not; and why AMD is doing well, but Intel is not. It was written in Barron's. Technology Tilts to Upscale Caris & Co. 1250 Broadway, 27th Floor New York, N.Y. 10001 (Tel) (917) 464-1600 THERE IS A POWERFUL DYNAMIC in the technology business that is required to explain many recent developments -- at times customers actively seek out more-expensive and more-capable products while shunning lost-cost products that are viewed as obsolete. In periods of rapid change, like now, many people will spend more to buy "future" protection. This preference for high-tech over cheap-tech is clearly evident in today's PC and server markets -- to the advantage of Hewlett-Packard and the detriment of Dell -- as well as in the television-set market to the benefit of Sony and in the smartphone market benefiting many, including Palm, Research in Motion, Motorola, Nokia, Sony-Ericsson and Qualcomm. This tilt toward high-tech is likely to stretch into 2007-2008 and possibly beyond -- depending on the pace of the combined upgrade cycles to Windows Vista, Virtual Computing, high-definition media and smartphones. Each of these upgrades is massive on its own and arguably without precedent in the respective markets. Taken together, this broad upgrade cycle -- to support the global expansion of digital services -- is the most important change in technology in the past five to 10 years, in our opinion. Recent reports of inventory buildups and potentially missed quarters in PCs have been combined with wildly contradictory indications of component shortages and rising final product average selling prices. What's going on here? We believe the best explanation is that Advanced Micro Devices' high-tech is beating Intel's cheap-tech in the market -- leading to misses for those dependent on Intel that have probably been exaggerated by AMD's "sold-out" condition. Another potential casualty of this high-tech tilt is Apple Computer. Dependent on subsidies to maintain its Macintosh margins, Apple has switched from IBM's subsidy to one from Intel. Unfortunately, Apple's high-prices are exposed now that its 32-bit Intel products are demonstrably inferior to competitors using 64-bit AMD microprocessors. The ability to run Windows XP -- via the just introduced "Boot Camp" -- on a Mac is likely to lead to a series of unfavorable comparisons, highlighting Apple's weakened competitive position as the PC world moves past XP toward Vista. We recognize that investors who have been trained to only expect steady price declines and even price wars will find this shift towards high-tech counterintuitive. As a result, many may be inclined to miss opportunities and/or to exit strongly performing stocks too soon. We suggest that H-P's aggressive use of high-tech AMD in both its PCs and servers will be a continuing reason to prefer its stock to its cheap-tech rival Dell. |
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