Tech earnings season starts in earnest Thursday with Intel, so investors should buckle up for what might be a rough start to the year. The reason?
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Margins.
To put it plainly, profits are under assault across the tech landscape.
According to Gartner, global IT spending will grow in 2014, but profits will be lower as analytics, software and lower-margin services grow faster than traditionally profitable areas like telecom equipment.
This, however, is just one part of the overall margin challenge. There are concerns in the consumer space, too.
Intel CEO Brian Krzanich said he expects the next generation of computing devices—a category that includes "wearables" like smart watches and home medical devices—to become 10 times larger than the smartphone market, but less profitably. Qualcomm CEO Paul Jacobs seemed to support this view during an interview at the Consumer Electronics Show last week.
Meanwhile, previously invincible stocks like Qualcomm and Samsung have shown some vulnerability over the past few months, for a common reason: Growth at the high end of the smartphone market is slowing and competition at the low end is brutal, where chipset suppliers like MediaTek are offering serviceable product for very little money.
