Dear Lou:
Congrats on the news February 4 on the IBM’s PC chip that broke the 1,000
MHz or 1 billion cycles per second barrier. That makes a Pentium 2 look
like a go-cart at the Indy 500.
Incredible. Forget Moore’s Law, here’s Lou’s law: Take the existing chip
speed and triple it, making silicon move in ways that even Bill Gates
hasn’t created software for yet.
Yes, we saw the rumor about IBM (NYSE:IBM) being a possible suitor for
Netscape (NASDAQ:NSCP). In fact we suggested it a month ago. It will take
deep pockets to build out the potential of what Netscape has created. Who
will win, Netscape’s couple thousand technowizards or Microsoft’s 20,000? A
company with $5 billion cash vs. one with heavy fourth quarter losses?
Which brings us to the illogical world of Wall Street and our latest
tweaking of the abacus. How is it that Microsoft (NASDAQ:MSFT) trades at
more than 50x earnings while “Big Blue” trades at just 16x? May very well
be the floating point error in those Pentiums they’re using in the
financial district. It happens. Or maybe it’s IBM’s time to rock the
boat.
MSFT market cap sits at almost TWICE IBM’s, despite the fact that IBM sales
for the fourth quarter of 1997 alone surpassed Microsoft’s entire 1997
sales. $23.7 billion. IBM 1997 earnings were the better part of Microsoft’s
entire year sales.
Net earnings for the 12 months ended December 31, 1997
were $6.1 billion, or a record $6.18 per common share. For record sake
let’s mention the $78.5 billion sales for last year, up 1%, but 1% is a lot
when we’re talking about $78 billion.
We peaked at Microsoft’s latest quarterly results, which were released
January 21 when Microsoft reported net income of $1.13 billion and
earnings per share of $0.85 for the quarter ended December 31, 1997, a 49%
increase over the $0.57 earnings per share reported for the same period
last year.
Revenues totaled $3.59 billion, a 34% increase over the $2.68
billion during the same quarter last year. A Zen of one hand clapping award
is in the mail to Steve Ballmer.
Here’s the snapshot of Big Blue and Big Blue Yonder:
IBM vs. Microsoft
IBM | Microsoft | % difference | |
Market cap (millions) | $ 96,792 | $ 187,600 | 94% |
Price/earnings | 16.36 | 53.34 | 226% |
Feb 5 close | $ 99.56 | $ 155.44 | 56% |
52-week high | $ 113.50 | $ 158.00 | 39% |
52-week low | $ 63.56 | $ 87.50 | 38% |
© 1998 Mecklermedia | |||
Internet.com |
So with the 1,000 MHz chip will Intel (NASDAQ:INTC) be your latest target?
We expect Compaq, DELL, Gateway, and more than a few others may be
interested in the speed. No doubt Lotus Notes on a silicon Ferrari may be
an entirely different animal.
Of course, the bottleneck remains with the telcos
that insist on squeezing every last ounce of juice from 100-year-old copper
wire that often can’t even handle 33.6 modem speeds. What good is 1,000 MHz
if data trickles in?
Corporate sell-through is much stronger and where IBM really has the
hardware/service combo. We think service could be the biggest growth area
in computing since networking is taking over the functions of corporations
entirely. Everything from accounting to research to e-mail. And the pipes
are fatter with ethernet, etc.
Notes on its own may not be lively enough to take on the server/browser duo
freebie that Microsoft flings out with its NT sales. Groupware (gropeware),
e-mail, content, whiteboarding, all are bundled into Microsoft’s
ever-expanding universe. Netscape has a presence with many rival products with
good inroads in some areas, though not others.
Related point, Compaq’s buy of Digital certainly shakes things up also. So
we put these elements into the emerging picture called “Internet computing”
and came up with this if-then-else statement: If IBM acquires HP
(NASDAQ:HWP), then it gains a big footprint in PC servers and big kahuna
machines, followed by a Netscape/Novell software double up to keep the
machinery humming.
Else IBM innovates while sleeping Wall Street understates, $100 billion
less market cap than Microsoft, makes zero sense.
