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By Rob Davies (TMFEssex)
Last week's article about how Y2K will affect the Qualiport ignited a vigorous thread on the Qualiport message board, which I recommend to all. In some very well informed posts a number of Fools made a variety of good points. Although as Bruce (TMF Googly) concluded at the end of the thread, no one really seems to know what the net effect of the Y2K bug will be.
Some posters, like Musketk, agree with IBM that everything is going to be pretty quiet for 6 months while people sort themselves out. More importantly, they won't want to do anything that will muck up stuff they have already done. He also makes the very good point, and one that I wasn't aware of, that next year is a leap year and not all computers will recognise 29/2/000 as a valid date. Nonetheless, he believes hardware and software buyers will return in strength later in the year.
However, this view is not shared by Blagden. His thesis is that a whole bunch of equipment and systems has been purchased under the cover of a Y2K budget. I can quite see the attraction for a department to order a slightly better, and more expensive, bit of kit and charge it to the Y2K account. Which Finance Director is going to get brownie points for being stingy on that one? He does not want his name being bandied around on Saturday 1st January 2000 when the firm's systems go pear-shaped and people look for someone to blame. They'll say: "It's all Arthur Stingie's fault. If he had let us buy the latest warp speed thingamajig then this problem would never have happened". That will be the phrase no FD will want to hear first thing next year.
Blagden goes on to make a further point that, having brought all this expenditure forward, there will be little appetite and even less excuse for buying more kit next year. If the company survives Y2K then the Finance Director is sure to look for cost savings in the IT department. That would be bad news for hardware, software and IT companies.
So who knows what the right answer will be? That's the problem, and the fun, of investing. It is never clear until afterwards what will happen, and then it will be blindingly obvious.
The message board then goes on another thread that is equally interesting. It was started by guavatree, who disagreed with my suggestion last week that IBM is a dinosaur that will driven to extinction by the PC. He says that the advent of "thin clients" will maintain the requirements for large mainframes. What are thin clients, you ask? So did I.
I am grateful to musketk who came to my rescue and told us that:
"A thin client is computer hardware with a built-in software subset which allows it to carry out standard functions such as access to the Internet and the company's intranet. Applications and data are downloaded across the network when the user wants them, or through a personalised log-on procedure. Some applications may have parts running on the PC and other parts running on a central computer (client-server operation) and this is transparent to the user. Not only that, but the balance can be changed without the user needing to know or worry about it. Once a user is finished, he logs off and the data he is using is saved and the thin client is restored to its original condition ready for the next user. Because the software and data is always copied from the centre, upgrades take place automatically and quickly. The number of software licenses is restricted to the maximum simultaneous demand, and the ability of a user to run unauthorised ad dangerous software is removed."
So now you know. Basically it reinforces Bruce's theory that the death of the PC has been greatly exaggerated. And it knocks on the head my theory that IBM is losing out. They are all going to co-exist happily together in a symbiotic relationship. Well, for a while anyway.
Figures out this week would certainly indicate that the PC market is extremely healthy.
The table below shows worldwide PC shipments from the major manufacturers.
Vendor Q3* Compaq 20% Dell 59% IBM 12% HP 26% NEC/PBNEC -6% *Year-on-year shipment growth
These figures shouldn't give Dell shareholders (NASDAQ: DELL) much to worry about.
Right, that's enough about tech shares. Let's talk about banks. The newly started Sector Dissector feature in stock ideas this week looked at the banking sector. A quick glance there confirms Bruce's choice of Lloyds TSB (LSE: LLOY) as the best one in the sector by far. Its return on equity, at 30%, knocks spots off everybody else. A 64p gain today is a good start to its life in the Qualiport.
Elsewhere in the portfolio there was more gloom from Rentokil Initial (LSE: RTO). At 202p it is trading at a two and half year low, although even at these levels there is no yield support and precious little from other ratios. The yield of 1.9% is still below the market average of 2.4%. Price to book is a racy 30.7 and price to sales at 2.0 is not supportive either. Let's hope the asset sales start to kick in soon.
That's it from me. Next week we have third quarter results from Unilever (LSE: ULVR). Until then post your thoughts on these and other issues to the Qualiport message board.
Company Change Bid DELL(US) 0.00 38.40 EMA -0.05 7.85 IIG +0.06 2.68 MSY +0.40 5.07 PIZ -0.02 8.00 RTO 0.00 2.01 ULVR +0.10 5.63 LLOY +0.46 8.40 Qualiport Stocks Last Rec'd Total # Company Buy Current Change 29/09/99 356 Lloyds TSB 7.56 8.40 11.2% 04/11/98 245 Pizza Exp 7.93 8.00 0.9% 27/10/98 1133 Indep Ins 2.60 2.68 3.1% 22/04/99 348 Misys 5.76 5.07 (12.0%) 27/01/99 74 Dell (US) 44.63 38.40 (13.9%) 19/12/97 783 Rentokil 2.55 2.01 (21.2%) 17/04/98 301 Emap 10.20 7.85 (23.1%) 17/07/98 266 Unilever 7.53 5.63 (25.2%) Last Rec'd Total # Company In At Value Change 29/09/99 356 Lloyds TSB 2723.20 2990.40 267.20 27/10/98 1133 Indep Ins 2990.63 3036.44 45.89 04/11/98 245 Pizza Exp 1966.34 1960.00 (6.34) 22/04/99 348 Misys 2028.71 1764.36 (264.35) 27/01/99 74 Dell (US) 2007.42 1722.18 (285.24) 19/12/97 783 Rentokil 2046.53 1573.83 (472.70) 17/07/98 266 Unilever 2052.00 1497.58 (554.42) 17/04/98 301 Emap 3139.85 2362.85 (777.00) Cash: £1,046.15 Current Total : £17,953.79 Total Invested: £20,184.62 Profit/(Loss) : (£ 2,230.83) Value Per Share Day Month Year Qualiport 2.15% -1.67% -14.99% FTSE 100 1.73% 3.75% 6.34% FTSE All Share 1.57% 2.77% 8.62%