After all, a mainframe/super computer is just a collection of computers working together to process code. Mainframes are built by combining a group of computers and synchronizing the computer into a single function.
Intel Corporation (NASDAQ:INTC), in its recent quarterly earnings announcement, said that it was able to grow revenue from its data center processing business by 7.5% year-over-year. The decline in IBM’s profit margin may imply that Intel is charging higher prices for its mainframe processors as Intel Corporation (NASDAQ:INTC) processors are used in mainframe computing. Intel processors are generally more power efficient, and dollar-per-dollar offer the best performance.
Intel Corporation (NASDAQ:INTC) should continue to grow in an environment of further virtualization. Virtualization is when a consumer uses a computer in a way that involves remote accessing (accessing programs and data from an online server). The cloud is just an alternative way of storing and using data. The core back-bone of the cloud are Intel processor-based servers. Not to mention, servers rely heavily on faster data-transfer speeds which is dependent on the speed of the hard drive.
Intel Corporation (NASDAQ:INTC)’s investment in solid-state drives, along with the economy of scale Intel has when compared to other hard drive manufacturers, should keep investors optimistic about Intel’s future in cloud computing. Intel Corporation (NASDAQ:INTC) is well-positioned on the data center side; Intel’s problem has been the weak mobile strategy, along with declining desktop shipments.
Intel Corporation (NASDAQ:INTC) provided weak guidance; investors are anticipating low single-digit growth over the next five years. When it comes down to risk- to-reward, Intel is falling off the cliff. Low-growth tech stocks should never be a part of an investor’s investment portfolio; technology comes with the added risk of uncertainty. I would never accept low-yields with additional risk.
Conclusion
IBM stands by its guidance, while declining revenue and net income should be a reasonable area of concern. Management remains relatively unfazed by the recent miss. Assuming IBM is able to post solid performances in the remaining quarters this fiscal year, and declines in its hardware division subsides, investors may gravitate back to the stock. Management hopes to sustain earnings per share growth through share repurchases and cost-cutting along with organic revenue growth.
Going forward, IBM could be a value investment opportunity as management’s guidance wasn’t altered much. The stock’s 12.50% decline could be a potential entry-point, assuming management wasn’t fibbing when it said earnings will continue to grow 10% year-over-year for the next five years. Assuming IBM can sustain growth, the stock’s pull-back will most likely be temporary, and investors hoping for a better entry-point can find one at its current price.
The article Is This Stock’s Recent Dip an Opportunity? originally appeared on Fool.com is written by Alexander Cho.
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