Thursday, November 14, 2013

A Quick Tour of Global IT (excerpt)

The information technology industry is one of the most competitive in the world. Creative destruction is its modus operandi. Given my interest in the knowledge economy, I am closely tracking the key metrics of the World Information Technology Sector MSCI. The bad news is that forward revenues actually peaked during 2012 and have been gradually declining since then. The cannibalization of PCs by smartphones and Cloud computing can explain the recent weakness in revenues.

The good news is that while sales and margins have been dropping in the PC industry, IT companies with higher margins are doing well, as evidenced by the forward profit margin of the global IT sector. It has actually been rising to new record highs since 2012.

As a result, forward earnings of the global IT sector edged up to a new record high during the first week of November. The forward P/E of the sector is 13.9, matching the valuation multiple of the World MSCI. That’s the cheapest relative valuation of the sector since 1995!

Today's Morning Briefing: Structural Problems. (1) Cyclical or structural? (2) Unconventional is turning conventional. (3) Great for asset holders, not so for job seekers. (4) Drowning in liquidity. (5) Lots of reasons for subpar growth. (6) The downside of the knowledge economy. (7) Brains putting brawn out of work. (8) Record-high spending on knowledge capital. (9) Margins rising for World IT MSCI, and the index is cheap. (10) Euro zone stocks discounting a recovery that may be weaker than expected. (More for subscribers.)

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