I keep hearing that technology shares are cheap.

The numbers seem to back that up. “Seem.”

Computer stocks trade for just 9.3 times reported earnings before interest, taxes, depreciation and amortization (EBITDA), according to Bloomberg. That’s just 1.3 times the multiple for the Standard & Poor’s 500 stock index for a whole. And that’s the smallest premium for computer stocks since Bloomberg’s data begins in 1998.

The price to earnings ratio for the companies in the information technology sector as compiled by Standard & Poor’s is just 14.8. The multiple for the entire index is 14.7. The 14.8 multiple for the information technology sector is the lowest multiple since December 2009.

And if you want to talk individual stocks, the numbers seem to make the argument even stronger. Cisco Systems (CSCO), one of the technology names to conjure with for decades, trades at a price-to-earnings ratio of just 11.5. Intel’s price-to-earnings ratio is just 10.2.

But, I’m sorry, I just don’t buy it.

I think technology stocks as a whole are pretty accurately priced. The big companies that dominate the sector, the names we all recognize, may even be slightly overpriced. And the true growth companies in the sector may be attractive buys on their growth but they sure aren’t cheap on their price-to-earnings ratios.

I think the whole “Technology stocks are cheap” argument fails to understand exactly how much the technology sector has changed from the good old days and how sweeping the revolution is that is now turning the sector upside down.

Let’s take a look at the assumptions in the technology is cheap argument. Read more

Update Microsoft (MSFT)

Microsoft (MSFT) reported fiscal second quarter earnings on January 28.

The really good news for investors was what wasn’t in the blowout numbers. And what’s happened to the company’s business since then.

The second quarter results were good enough on their own. (Microsoft’s fiscal year ends in June.)

The company reported earnings of 60 cents a share. Once you added back in $1.7 billion in deferred revenue and about 14 cents a share in earnings from sales of Windows 7 that Microsoft decided it would recognize in future quarters the earnings picture looked even better at 74 cents a share. Wall Street analysts had included that deferred revenue in their estimates of 59 cents a share for the quarter. That made this is a 15 cents a share earnings surprise.

The company attributed the surprise to better than expected sales of its new Windows 7 and Windows Server 2008 R2 software launched in October. Through the second quarter Microsoft had sold 60 million Windows 7 licenses, making it the fastest selling operating system in history, according to the company.

But what’s really interesting for investors who want to know not what Microsoft did in the quarter but what the stock might do going forward is that the company reported it still hadn’t seen a significant contribution to sales from corporate—known as enterprise—purchases of Windows 7. Read more

Google’s earnings are good news–let me count the ways

Google’s (GOOG) good earnings news is an indicator of something,  but just what?

On October 15, after the market close,  Google reported earnings of $5.89 a share, 47 cents a share above the consensus estimate of $5.42. Revenue, after traffic acquisition costs, climbed 8.4% from the third quarter of 2008. That was about $160 million ahead of the Wall Street consensus of $4.24 billion.

But what do the numbers mean? Read more

Update Microsoft (MSFT)

Everybody seems to agree that Windows 7 will boost sales at Microsoft (MSFT). The disagreements are over by how much and when?

The software, a favorably reviewed replacement for Microsoft’s widely reviled Vista operating system, goes on sale on October 22.

The pent up demand is potentially huge. Estimates say that 80% of the companies running their PCs on a Microsoft operating system never upgraded to Vista. Vista was introduced in 2007 and Windows XP goes back five years before that so these machines could be running software that’s as much as seven years old.

And about 80% of companies say they plan to switch to Windows 7 in the next two years, according to ISI Group.

How much of that will be in the next year? Read more

Apple and Google go head to head in China’s mobile phone market

Ladies and gentlemen. In this corner, wearing the Macintosh red trunks, Apple (AAPL) and its partner China Unicom(CHU)

In the other corner, wearing the Chrome trunks, Google (GOOG) and its partner China Mobile (CHL).

That’s the lineup that’s about to cross gloves in China’s smartphone market later this year, according to The Financial Times.

Apple is days, weeks, months away from signing an exclusive, three-year deal with China Unicom, the country’s No. 2 wireless operator, for its iPhone.

Google is about to launch a line of smartphones based on its Android operating system with China Mobile, the country’s biggest wireless operator.

At stake is not just China’s wireless market but momentum in the global battle over smartphones. Read more