International Business Machines Corp. (IBM), Microsoft Corporation (MSFT): Same Story, Different Decade for This Tech Giant

What about the pioneer?

There’s no doubt that Apple has paved the way in both mobile and tablets, forcing many other providers to hold themselves to a higher standard. But the real problem with Apple’s business model is that it must innovate to grow.

Despite being the tablet leader, the market is heating up; competition now includes the likes of Hewlett-Packard, Barnes & Noble and Amazon. Apple saw continued weakness last quarter, with the tech giant posting EPS of $7.47 compared to $9.32 for the same period last year.

After the 3Q results, Morgan Stanley reiterated its overweight rating, noting that a big positive was the flat gross margin guidance, where the company generally sees margin compression during product-transition periods. The firm maintained its $540 price target.

Bottom line

Einhorn made a timely exit form Microsoft, while the stock was up nicely on the news that ValueACT was starting a campaign. Microsoft still pays a 2.9% dividend yield and appears cheap. The real issue going forward will be whether Microsoft can navigate  the changing industry.

I like Microsoft’s chances, given ValueACT’s track record at Adobe. I also like IBM given its exposure to the high-margin services side of the tech industry. However, I’m still not convinced that Apple can continue innovating enough to return to its $700 price tag. 

Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple, International Business Machines., and Microsoft.

The article Same Story, Different Decade for This Tech Giant originally appeared on Fool.com and is written by Marshall Hargrave.

Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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