Google Inc (GOOG), Apple Inc. (AAPL): Tablets Aren’t the Only PC Ailment

Expensive

Google Inc (NASDAQ:GOOG), meanwhile, is taking a mixed approach with Chromebook, making its own and allowing other manufacturers to build them. Like so many of its offerings, it’s using advertising to make money. That said, the company is increasingly looking like a competitor to many of its partners. That’s a risky business shift, especially right now.

The company’s top-line continues to grow rapidly, but that’s covered up a profit margin drop of ten percentage points over the last two years. Lower margins in mobile advertising and the device area (notably cell phones) are two big reasons for the falloff. Chromebook’s success isn’t going to offset that trend.

Although Google Inc (NASDAQ:GOOG)’s price to earnings ratio of around 26 isn’t outlandish, it is high compared to Apple Inc. (NASDAQ:AAPL)’s PE of about 11. If investors sour on Google Inc (NASDAQ:GOOG)shares, the stock could fall fast and far. Investors need to monitor Google Inc (NASDAQ:GOOG)’s performance closely.

The shifting PC market

Even if Chromebooks really catch on, they probably won’t alter the trends in the computer space. For example, Hewlett-Packard Company (NYSE:HPQ) has been working on a turnaround for some time and sells a Chromebook. Only, the big shift the company is trying to pull off is to move into the services and software space.

A difficult PC market and a series of “house cleaning” moves left 2012’s bottom-line in the red and the top-line off about 5%, year-over-year. However, the shares have about doubled since late last year on signs of success under CEO Meg Whitman. It isn’t the Chromebook that investors are watching—its the shifting business model.

What’s it good for?

It’s impressive that Google has been so successful with the Chromebook, but that doesn’t make the company’s margin compression issues any easier to deal with. Investors should be wary. Apple Inc. (NASDAQ:AAPL) is already on to one of the core attractions of the Chromebook, ease of use. So its bargain priced shares might interest investors in search of growth and income. The other PC makers, however, are in a state of flux that Chromebooks only make more complicated. Aggressive types might try to pick winners and losers, but others are better off avoiding hardware makers like Dell Inc. (NASDAQ:DELL) and Hewlett-Packard Company (NYSE:HPQ) for now.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Tablets Aren’t the Only PC Ailment originally appeared on Fool.com is written by Reuben Brewer.

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