Innovation Trumps Status Quo: Rising Stars in Today’s Tech Battle

Technology is often referred to as the sector of all seasons, as it holds many characteristics that should power returns throughout the entire year. However, just like any other sector, it usually pays to pick the best in class.

In an environment where Apple Inc. (NASDAQ:AAPL) dominates the consumer tech industry, Dell Inc. (NASDAQ:DELL) is getting schooled. The Texas based computer company recently reported first-quarter earnings and the results were ugly. Net income for Dell dropped 32.8 percent to $635 million, compared to $945 million a year earlier. Revenue also fell 4 percent to $14.42 billion. The results were a miss on the top and bottom line. Adjusted net income came in at 43 cents per share, falling below the mean estimate of 46 cents per share on revenue of $14.92 billion.

A Closer Look: Dell Earnings Cheat Sheet>>

“We’re committed to continuing our strategy to re-shape Dell’s business as an end-to-end IT provider,” said Michael Dell, chairman and CEO. “We saw continued progress in our first-quarter with the innovative IT solutions we’re providing – notably our latest Dell (NASDAQ:DELL) servers, storage, networking and services that deliver customers enhanced productivity.” The company has now seen its net income fall in each of the last two quarters. In the fourth-quarter of the last fiscal year, net income fell 17.6 percent from the year-earlier period.

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Dude, you’re getting a stock crash! Investors punished Dell’s stock relentlessly after the dismal first-quarter results. On Wednesday, shares plummeted more than 17 percent. It was the worst single day trading loss for the company in 11 years. Dell was also the worst performer in the entire S&P 500 (NYSEARCA:SPY). Its performance even affected Red Hat Inc. (NYSE:RHT) shares, which closed 3.3 percent lower. Earlier this month, Dell and Red Hat signed an agreement to produce hardware and software solutions together for IT manufacturers worldwide. NetApp Inc. (NASDAQ:NTAP) also received a stock crash after reporting poor financial results, with shares falling more than 12 percent Thursday.

As the chart above shows, Apple shares have outperformed other tech names by a mile, which many are now considered to be old tech. Year-to-date, Apple shares have gained about 40 percent, while Dell has declined 14 percent. Microsoft Corp. (NASDAQ:MSFT) has received new life this year by gaining 12 percent, but Hewlett-Packard Co. (NYSE:HPQ) is still in the red.

On the positive, Dell shares may be able to receive a boost later this year when Microsoft is expected to release its new Windows 8 operating system. As long-time readers know, a ‘Catalyst for a Stock’s Movement’ is a crucial variable in our CHEAT SHEET investing framework. However, Dell will need to catch its falling knife before climbing higher. Despite the popularity of Apple’s numerous iProducts, Hewlett-Packard is still the global market leader in PC shipments. The company’s first-quarter market share increased to 17.2 percent, compared to 16.9 percent a year earlier. After Wednesday’s closing bell, HP also gave hope to investors looking for a more traditional tech play.

Although Hewlett-Packard’s (NYSE:HPQ) net income declined 30.9 percent in the most recent quarter, it reported adjusted net income of 98 cents per share, above the mean estimate of 91 cents per share. In a surprising move, the company raised its full-year guidance to $4.05 to $4.10 per share, compared to the consensus of $4.03. HP also announced plans to lay off 27,000 employees by October 2014. The job cuts and other cost-saving measures are expected to save as much as $3.5 billion annually. “We are making progress in our multi-year effort to make HP simpler, more efficient and better for customers, employees, and shareholders,” said Meg Whitman, HP president and chief executive officer. “This quarter we exceeded our previously provided outlook and are executing against our strategy, but we still have a lot of work to do.” Shares surged more than 8 percent in early Thursday trading. Shares of H-P closed Friday up 2.57% at $22.33 per share.

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