This column was originally published on RealMoney on Aug. 15 at 1:56 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.
screwed up on pricing. Plain and simple.
screwed up on conservative guidance. And for those reasons you are selling tech? Shame on you.
I know these two 1990s bellwethers stunk up the joint when I was away, and I am sure that many of you chose to interpret their pricing mistakes and their dismal guidance as meaning that tech's through for 2005.
Because these stocks are so important in the minds of so many investors -- rightly or wrongly -- I feel compelled to do more than just dismiss them as aberrant. In fact, they fit in perfectly well with my pro-tech thesis. Let me explain.
First, let's deal with the fundamentals of these two ne'er-do-wells. Dell blew out the PC unit sales: up 25% overall and an astounding 47% in laptops. They priced poorly, and they paid the price for doing it. But that doesn't mean you should sell
In fact, it means you should buy them, because they are leveraged to the unit blowouts, not to the margins of Dell. Often they are inverse: The more units Dell sells, the more Microsoft and Intel make, regardless of how much Dell makes.
Cisco does benefit from rising infrastructure spending from both the carrier companies and general businesses enterprise, but it is
and will not be a direct beneficiary of the big cycles -- flat-panel TVs, high-definition TVs, DVR set-top boxes, video-game consoles, MP3 players, WiFi and the like. Cisco doesn't get sold at
, where the revolution is being televised.
Nevertheless, its "advanced technology" business line was up 27% year over year, which is the closest Cisco comes to the product revolution I want to be invested in. Cisco's overall orders were very strong, but it lacks the leverage to the cycles, so it simply isn't as compelling as other plays.
Intel and Microsoft have much ahead of them that's truly exciting. Intel has just started shipping dual-core products. Microsoft's Vista -- formerly Longhorn -- starts shipping next year. Then we should see the product upgrade that could spur sales for both companies.
The most pathetic thing to do off of Cisco and Dell is to sell in what has
been the seasonably strongest part of the year. Right now is when the
starts, for PCs, for cell phones, for all of those consumer products that I want the leverage to. We could see an even bigger build in cell phones than usual because of the 3G mix change that starts in the fourth quarter.
What makes me so confident that the build is on track and will produce the big rally in the second half? For one, all of the anecdotal evidence is pointing that way: stable flat-panel prices, rising DRAM prices, disk drives on allocation, tightening foundry capacity and increases in wafer starts. Nothing from Dell or Cisco changes that; in fact, you should be encouraged by Cisco's 7% sequential growth in orders and Dell's awesome unit growth.
I think any declines in tech from here on in are just gifts. I can't believe I was able to get some Microsoft in below $27 today for
Action Alerts Plus.com. I am surprised that a Goldman analyst would downgrade Intel because of a so-so outlook, as happened last week, given what's in the pipe.
Yet, again, I keep thinking, why do we always have such big second-half runs in tech? What makes them so accessible to all who believe? And the answer is that every year, in July and August, we experience disappointments that
investors can't stomach, and they puke out all of the good stuff.
It is happening again. If you don't believe me, go take some Dramamine. Maybe that will fortify you so you hang on for the upcoming gains.
: I'm excited about tech. If you're smart, you are, too. And so is Richard Suttmeier. He's watching tech all the time, ready to email you when he sees a move to make so you don't miss a beat for TheStreet.com Technology Report.
Sign up now.
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At the time of publication, Cramer was long Intel and Microsoft.
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