The S&P 500 returned 65 per cent over the period. Add a third word and you
were really cooking. Owning tech stocks, in the form of the S&P 500 tech
index, returned 116 per cent.
And no, it is not only Apple. Three old stalwarts that make up a quarter of
the tech index – IBM, Microsoft and Intel – all beat the market over the
period. All three also reported earnings last week and the bad news is that
IBM and Intel’s numbers suggest tech’s momentum might be winding down.
Quarterly revenue growth slowed to a virtual halt at both, after nine quarters
of expansion. That is admittedly more important for Intel than IBM, which
prizes profits over revenues. But pretax profit at IBM rose by less than 1
per cent – the slowest since the annus horribilis 2009.
Which leaves Microsoft looking like a standout with 6 per cent top-line
growth. Microsoft’s ability to grind growth out of its operating system and
office software businesses, even without benefit of an upgrade cycle, is
well known. What was striking in the latest quarter, however, was the rapid
expansion of its datacentre software unit, which now makes up a quarter of
sales. Many people do not know Microsoft is in that business, but it could
be worth $70bn or more if it stood alone.
Why, then, has Microsoft underperformed its two peers? And why is its stock
cheaper than IBM’s and just as cheap as Intel’s on most measures? Because
its future is the most opaque of the three. Microsoft will release Windows 8
– the most substantially redesigned version of its operating system since
the disastrous Vista launch five years ago – this year. If the system is
good enough to entice a wave of PC upgrades, or better, to make Microsoft a
real contender in tablet computing, truly impressive growth could be on the
way. But as Vista showed, the risks are very real, too.
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