Terrible day for PC stocks—and it’s pretty much all Microsoft’s (MSFT) fault.
You see Microsoft’s new Windows 8 operating system—the big redesign with a touch screen—was supposed to revive PC demand.
And it hasn’t. In fact it looks like Windows 8 has made a bad situation worse as the redesign has driven away—or at least delayed their purchasing decisions–the corporate customers that are the remaining mainstay of PC demand.
At least that’s the conclusion from market watchers IDC and Gartner. IDC’s newest data, released yesterday, show worldwide PC shipments falling 13.9% during the first quarter from the level of the first quarter of 2012. Gartner’s numbers are only slightly less grim with the company estimating an 11.2% drop.
It’s not just that the numbers are so bad—it’s that they are so much worse than they were supposed to be. Read more
I don’t think it’s wise—or profitable—to ever underestimate Intel’s (INTC) patience. Recent product announcements and news on design wins show that the company continues its long-term attack on markets where Wall Street seems to have concluded that Intel can never win. (Intel is a member of my Dividend Income portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ It pays a 4.2% dividend.)
“Never” is a long, long time.
First, Intel announced a slight upgrade on its Atom chip—the Z2580–at February’s Barcelona Mobile World Congress and that was almost immediately followed by news that China’s ZTE, the fourth biggest seller of mobile phones in the world, has decided to use it in some of its new phones. This is an important follow up to Intel’s win with the Motorola Razr I phone last year. Intel still doesn’t have a central position in mobile phone silicon but it is no longer completely locked out of that market and the company even has some momentum. The Atom Z2580 does look like it has closed some of the graphics gap with chips from ARM Holdings (ARM.LN in London and ARMH in New York.)
Second, Intel has beaten out Taiwan Semiconductor Manufacturing (TSM), the largest independent chip foundry in the world, to build chips for Altera (ALTR), a leader in field programmable gate array technology. Read more
When I added Intel (INTC) to my dividend income portfolio on January 11 http://jubakpicks.com/2013/01/11/reformatting-my-dividend-income-portfolio-for-a-period-when-dividend-investing-gets-more-important-and-tougher-too/ , I wrote that the stock had tumbled in the last twelve months on fears of the continued slowdown in the PC market. And I said that I saw signs that Intel’s foundry business, the business of making chips for other chipmakers, was starting to pick up speed. The growth of that business could transform the way investors thought of Intel again, I added.
Well, both those trends, the bad and the good, have been in evidence in the last few days.
On January 17, after the close of the New York markets, Intel reported fourth quarter earnings of 48 cents a share, 3 cents a share above the Wall Street consensus, on revenue of $13.48 billion (versus the $13.53 billion consensus.) Gross margins in the quarter came in at 58% against the company’s guidance of 57% (plus or minus two percentage points.)
As expected, it was the PC group (63% of revenue) that killed the quarter. Revenue from that unit at Intel fell 1.5% from the third quarter and dropped 6% year over year. Those numbers are worse than they seem since Intel’s PC business traditionally reports 5% to 7% revenue growth in the fourth quarter.
Guidance for 2013 wasn’t any worse than Wall Street had expected, but no better either. Read more
Wouldn’t ya know it?
Just when dividend investing is getting to be more important—becoming in my opinion the key stock market strategy for the current market environment—it’s also getting to be more difficult to execute with shifting tax rates and special dividends in December 2012 distorting the reported yield on many stocks.
I think there’s really only one real choice—investors have to pull up their socks and work even harder at their dividend investing strategy. That’s why with today’s post I’m revamping the format of the Dividend Income portfolio I’ve run on JubakPicks.com (and it’s precursor on MSN Money and Moneyshow.com) since October 2009. The changes aren’t to the basic strategy. That’s worked well, I think, and I’ll give you some numbers later on so you can judge for yourself. No, the changes are designed to do two things: First, to let you and me track the performance of the portfolio more comprehensively and more easily compare it to the performance turned in by other strategies, and second, to generate a bigger and more frequent roster of dividend picks so that readers, especially readers who suddenly have a need to put more money to work in a dividend strategy, have more dividend choices to work with.
In this post I’m first going to give you a brief explanation for why I think dividend investing is so important right now—and I’m even going to argue that dividend investing might be the single best strategy for this market environment. (And that’s an important argument, in my opinion, since I think this market environment is going to persist for years.)
Then I’m going to lay out the changes in how I’m going to track this portfolio going forward and give you some numbers so you can judge the performance of this portfolio since 2009 and particularly in 2012.
And last I’m going to give you a pick to replace one stock in the current portfolio that has been a disappointment and also two new picks—that’s three picks in all—as part of an expanded dividend portfolio.
So why is dividend investing so important right now in my opinion?
For the last nine months or more, I’ve been writing about what I’ve called the new paranormal market. To catch up if you’ve missed the foundation of this argument see my post from March 2012 http://jubakpicks.com/2012/03/02/call-it-the-new-paranormal-market-youll-need-some-new-investing-tools-but-the-profits-are-out-there/. The premise of my argument is that we’ve entered a period of relatively low returns. Bill Gross, the bond guru at Pimco, calls this period the “new normal” and believes that we’ll be lucky to see average annual returns of 5% a year during this period, which could stretch out for a decade. In my model for the “paranormal market” I’ve added a wrinkle to Gross’s model. Not only will average annual returns be low by the standards of the great bull market that governed the 1980s and 1990s, but also markets will be extraordinarily volatile. So, yes, you might see an average annual return of 5%, but that average will include years of 10% or 15% drops as well as substantial rallies, and it will include years like 2011 when the market will produce a half dozen swings of 7% or more in a month as it did in August. The challenge will be to stay in through the volatility and avoid buying high in moments of market optimism and selling low when everything seems to be headed for ruin—or to find a way to sell more often at market highs and to buy more often at market lows.
Why do I believe that there’s any validity to either Gross’s “new normal” or my “paranormal” market? I’m skeptical of attempts to argue for long-term market trends while we’re in the midst of the action. What seems like a trend can so easily turn out to be just a part of a longer data series pointing in a very different direction. So I’m reluctant to say that just because average returns have been so “modest” and so volatile lately that they must continue that way for some future period. (The cumulative return on the Standard & Poor’s 500 Stock index is 13.4% for 2012, 27.9% for the last three years, and -2.87% for the last five years.)
What I find convincing about the “new normal” and the “new paranormal” models is the match between the market performance data and the underlying fundamentals of the global financial system. In the last decade or more we’ve seen long term trends—the integration of more countries into the global economy, the rise of new economic powers, big changes in the location of global cash balances and in the direction of global cash flows (as emerging economies emerged and developed economies aged and slowed)—that have challenged the global financial system.
And while the global financial system has survived, by and large, the cost has been huge actions and re-actions by the world’s central banks that have sent waves of cash sloshing across the world. That has led to massive market bubbles created by the overshoot of central bank policies (cheap money and the technology boom and bust, cheap money and the real estate boom and bust, cheap money and the global financial crisis.)
The period has combined falling real returns as globalization increased competitive pressures on bottom lines and as aging stressed global retirement systems with rising volatility as ever expanding central bank balance sheets led to a cycle of booms and crashes. The strongest argument for a period of “new normal” or “paranormal” returns is that the trends that have pushed down returns on capital (globalization and aging) continue to work—and that central banks now face the challenge of supporting the global economy with new cash infusions even as they confront huge balances that require them to exit these markets.
I’d love to see any logic that holds that this is a recipe for steady positive returns.
Why is dividend investing so important in this environment? Read more
It was as much of a surprise as Apple’s (AAPL) earnings miss. On October 18, after the New York market closed, Intel announced third quarter earnings of 69 cents a share, 6 cents a share above the Wall Street consensus.
And the biggest contributor to Intel’s surprise was its PC chip group, which contributed $4 billion in pre-tax profit. The company’s unit focused on servers and cloud computing added $1.2 billion in pre-tax profits. And Intel’s chip group that produces low-power chips for tablets, embedded processors, and smart phones turned in a $140 million loss.
Revenue climbed 28% from the third quarter of 2010 to $14.2 billion. Analysts had been looking for revenue of $14.23 billion.
The strong performance in the data center and cloud-computing segment was expected. Growth rates in both markets are strong and Intel has aggressively pushed new generations of server-chips in the market. Its new server chip, the Xeon E5, is due to go on sale in early 2012.
But Wall Street analysts had projected much less revenue and much lower earnings growth for the PC chip unit as PC growth slowed under the dual pressure of a slowing economy that has kept consumer sales down and on a shift from PCs and laptops to tablets and smart phones.
That shift wasn’t in evidence this quarter. Read more