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Microsoft, Intel and Cisco Follow Path Predicted in 'Leaders to Laggards' Series
Money Morning subscribers who read our Leaders to Laggards series on the flagging fortunes of Microsoft Corp. (Nasdaq: MSFT), Intel Corp. (Nasdaq: INTC) and Cisco Systems Inc. (Nasdaq: CSCO) weren't surprised by subsequent developments, since we told you exactly what to expect.
The Leaders to Laggards articles described how each company's failure to anticipate changes in their markets undermined their ability to grow revenue. Consequently, their stocks – which many investors rode to massive profits in the 1990s – have languished for the past decade.
Those tribulations have continued since the publication of our series. Microsoft and Cisco have struggled mightily, and as predicted, only Intel has managed to make headway.
Why Intel Is Still a 'Buy'
Intel surprised Wall Street with better-than-expected earnings last week – its standout divisions pointing the way to the future growth that for years had eluded the company.
Profits were up 2%, while revenue jumped 21% year-over-year. And gross margins edged up to 64% from 61% in the previous quarter.
Revenue from data centers, which provide the infrastructure for the cloud-computing trend that is now beginning to dominate mobile devices such as tablets and smartphones, was up 15.2% and accounted for nearly 20% of total sales.
Intel sees data centers as a major source of growth. The company expects sales to rise to $10 billion this year and to $20 billion within five years.
An even bigger surprise was the strength in the chipmaker's PC business, which accounted for 64% of Intel's revenue. Sales of the PC division rose 11% despite sluggish growth of about 2.5% in the overall PC market.
"We knew that there would be strength in the servers, but to see double-digit growth in their PC unit is great," Michael Shinnick, a money managerat Wasatch Advisors Inc.,told Bloomberg News.
Star Hedge Fund Manager Einhorn to Microsoft CEO Ballmer: Time to Go
Citing the stagnant stock performance of Microsoft Corp. (Nasdaq: MSFT) over the past decade, hedge fund manager David Einhorn publicly called for CEO Steven A. Ballmer to step down and "give someone else a chance."
While the tech-heavy Nasdaq Composite Index has gained 34% over the past 10 years, Microsoft has slumped 25%.
Ballmer was named CEO in January 2000.
"His continued presence is the biggest overhang on Microsoft's stock," said Einhorn, who gained notoriety after betting against Lehman Brothers Holdings Inc. (PINK: LEHMQ) four months before its collapse in 2008.
After a Decade of Miscues, Can Microsoft Corp. (Nasdaq: MSFT) Hook Up With the Mobile Revolution?
There are monopolies.
And then there's Microsoft Corp. (Nasdaq: MSFT).
With its Windows operating system installed on virtually all of the world's PCs – the market share peaked at about 95% – Microsoft became synonymous with the personal computer revolution.
And it didn't stop there. After locking up the operating-system market, Microsoft did nearly the same thing in the applications market with its Office suite of productivity software.
Once the Planet's Most Valuable Company, Cisco Systems Inc. (Nasdaq: CSCO) Now Seeks to Rebound From a Decade of Stagnation
At the height of the 1990s Internet boom, Cisco Systems Inc. (Nasdaq: CSCO) wasn't merely the ultimate tech titan.
It was the most valuable company on earth.
Cisco – the maker of the switchers and routers that form the backbone of the Internet – saw its shares zoom 66,000% during that decade, thanks to booming PC sales, the exploding popularity of the Internet, and the widespread realization of the value of networking.
That mesmerizing surge gave the San Jose-based company a peak market value of $555.4 billion, a total that's never been approached again – by Cisco or any other firm.
In 2000, however, the Internet bubble burst – derailing the Cisco Express. Now one of the world's biggest tech firms, the growth rates of 40% to 50% that had propelled Cisco throughout the 1990s became impossible to sustain – and even fell to the single digits by the end of the 2000s.
To Awaken a Sleeping Giant: After Missing the Mobile-Computing Boom, What's Next For Intel Corp. (Nasdaq: INTC)?
From 1990 to 1999, Intel Corp. (Nasdaq: INTC) shares soared 10,000%, making the chipmaking half of the so-called "Wintel" duo a stock that almost every investor wanted to own.
And why not: Intel's processors served as the brains of 90% of the world's personal computers. And the PC market was booming.
It's been a much different story over the last 10 years, however.
“Where Money Goes to Die:” After a Decade in Decline, Can Microsoft, Intel And Cisco Pull off a Rebound?
They ruled them.
Microsoft's Windows operating system ran more than 95% of the world's PCs, and its word-processing and spreadsheet programs accounted for an estimated 95% of the market for office-applications software. The company was a constant target of state, federal and overseas governments, which tried in vain to break – or at least slow – the monopolistic juggernaut.
Intel, the other half of the so-called "Wintel" duopoly, had its chips in more than 90% of the world's PCs. Its identity was so strong that – by stamping "Intel Inside" on the beige PC cases – the company was able to "brand" what might otherwise have been a commodity product.
And Cisco was acknowledged as the backbone of the Internet, a key reason that – back in March 2000, with a market cap of $555.4 billion – it became the most valuable company on earth.
Throughout the 1990s, the shares of all three companies performed as the "must-own" stocks that they were: Microsoft's shares rose more than 9,000%, Intel's 10,000% and Cisco's 66,000% during that 10-year stretch.