Minyanville contributor Adam Katz dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.
Texas Instruments (NYSE: TXN) reported disappointing results and Sun Microsystems (NASDAQ: JAVA) preannounced negatively. Last week, IBM (NYSE: IBM) followed through with their positive preannouncement and Google (NASDAQ: GOOG) outperformed expectations.
What we are seeing is a divergence in where dollars are flowing. With company web sites largely representing the most effective and quantifiable marketing tool, it should come as no surprise that GOOG has revenue streams that are reasonably insulated. (This is not a call on GOOG because I believe the market is also pricing in the fact that the hyper growth days are behind them).
With respect to IBM, infrastructure software has been the primary driver behind the top line growth and growth in margins. In the meantime, the disappointment that we are seeing from TXN and JAVA should be reasonably expected as you are seeing slowing demand for hardware (in part driven by virtualization which by definition lowers hardware requirements) and TXN which, leveraged to consumer communication devices, is also taking a pause.
But I would highlight that TXN did see continued strength in the smart phone business which will be a driver for more bandwidth and content over the Internet. I highlight this because the positive performance we are seeing resides largely in infrastructure software and the weakness we are seeing is largely residing in hardware.
Just a heads up as we get into the thick of earnings season.
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