The business cycle in the technology sector moves very fast. What once was new soon becomes old. Products get commoditized in an instant, and companies find their markets saturated quickly, slowing their growth to a much lower rate.
That’s what has happened to Microsoft (MSFT) and Intel (INTC). Yet both companies still have solid, if not always meteoric, earnings growth. And they have instituted healthy dividends, turning themselves virtually into utilities. All this can make them an attractive investment play.
The world’s largest chip maker had a stellar first quarter. Net income soared 29 percent from a year earlier to $3.16 billion from $2.44 billion, beating analysts’ estimates by more than 20 percent. Sales surged 25 percent to $12.8 billion.
The smartphone and tablet craze boosted demand for Intel chips that help power the devices. And while demand for new personal computers is sluggish, demand for upgrades isn't, allowing Intel to benefit from its 80 percent share of the microprocessor market.
The company also is reaping gains from demand for servers that offer cloud computing, which provide all of a computer’s services over the Internet. “The server business exceeded our expectations,” Intel Chief Financial Officer Stacy Smith said in a statement.
Twenty-one of the 30 analysts surveyed by Daily Finance have a buy or outperform rating on Intel.
The world’s largest software producer also beat analysts’ earnings estimates in its latest report. Profit totaled $6.63 billion in the quarter ended Dec. 31, topping estimates by 13 cents. Sales climbed 4.9 percent to $20 billion, also exceeding expectations.
Demand is strong for Windows 7. "Nearly 90 percent of enterprise companies worldwide have already started their formal migrations to Windows 7," Microsoft Chief Financial Officer Peter Klein said on a conference call. Microsoft has sold more than 300 million copies of the product.
The success of Microsoft’s Xbox 360 consoles sent sales in the entertainment-and-devices division soaring by 55 percent.
And the outlook for the future is solid. “We expect revenues to rise 13 percent in fiscal 2011, ending June 30, following 6.9 percent growth in fiscal 2010,” writes Standard & Poor’s analyst Jim Yin.
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