Is the response to Intel’s Q4 2014 Results overdone?

2-Color-Design-Hi-Res-100px-widthOn Thursday, January 15, 2015 Intel reported the results of its Q4 2014 business activity. In the aftermath of the report, which included conservative guidance for the coming business quarter below analyst estimates, analysts expressed skepticism.

I should also note the conference included details about the extent of the costs Intel continues to incur to enter the market for CPUs for mobile devices. Finally, rumors circulated about the possibility of Apple changing CPU architecture for its Mac PCs and laptops.

But is the analyst negativity overdone? In my opinion it is. Market entry is never an easy process, especially when the business attempting to enter a market is the largest manufacturer of PC computer CPUs, and the target market is already mature and dominated by other vendors with well received products (the ARM chip architecture and its licensees, including Qualcomm). So there is a cost associated with this entry, which, admittedly, Intel has been paying out for several quarters.

However, the Q4 2014 results included a beat on the profit number and an increase in gross margin. These numbers, of course, include the losses just mentioned. If Intel is not only able to carry the cost of mobile market entry, but to, at the same time, increase its overall profitability and still hit estimated sales targets, then why all the gloom? Perhaps the answer is Q4 2014 is behind us and we are already nearly a third of the way through the next coming quarter.

I am not interested in debating this argument. Nor am I interested in analyzing the Apple rumors. What I am interested in doing is merely pointing to a very positive reception for one of the new Android tablets on the market powered by Intel’s Atom processor and the new Broadwell chip set. The tablet is manufactured by Dell, the Venue 8 7000. No less a fierce Intel naysayer than Joanna Stern of the Wall Street Journal wrote a very positive review of the device, in sharp contrast to reviews she published earlier about Microsoft’s Surface tablets.

The value of positive consumer press about these devices should not be underestimated. Stern’s review may mark a change in sentiment for precisely the right group of critics to influence affluent consumers to think hard about just which tablet they ought to buy next.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved


Does Twitter Stock Mania Tell Us Markets Don’t Understand the True Potential of Cloud Products?

As Steven Russolillo wrote in an article titled Twitter Downgraded: Nothing Has Changed . . . ., which was published in the Wall Street Journal on Friday, December 27, 2013, “Twitter’s high-flying stock has gone too far, too fast.”

But when one considers the Twitter stock price phenomenon within the context of a few other recent nonsensical events (for example, the increase in the stock price of Adobe despite its well publicized security problems, and its comparatively unprofitable transition to a cloud, Software as a Service (SaaS) subscription model for its leading Creative Suite product set), it shouldn’t be difficult to see the difficulty markets are having identifying real lasting value in cloud product offers. The distance between stock market valuation and actual profitability for publicly traded cloud businesses, including Twitter, Facebook, or LinkedIn, along with mature ISVs like Adobe, will not last more than a week, month, or, perhaps, a quarter or two. Inevitably the prices will have to come down, perhaps via a very hard landing.

Equipping Twitter with an advertising component at once attractive for customers, and promising from a profitability perspective, is not likely to be an easy proposition. What will work for a retailer looking to move closeout stock, is not going to work for a market commentator with a small circle of readers. Each of these Twitter pages requires a different type of advertising feature. But market analysts seem to be looking for click advertising banners to simply pop up all over Twitter pages. At the same time, the most optimistic of these analysts are also expecting a lot of clicks on those ads. Not so fast is what I have to say on the subject.

Analysts like Macquarie Equities Research (the subject of Mr. Russolillo’s short article in the Journal) are sensitive to the danger. But rating the stock an “underperform” for the future, is, perhaps, too understated. I think it makes more sense to rate it a “sell.” Investors fortunate enough to have a position in the stock as it made its move should sell to lock in gains. The future for the stock prices of Twitter, and its peers, doesn’t look so bright.

I have no current investment, whatsoever, in Twitter, or any other publicly traded business mentioned in this post.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved