Megacaps - Disruption, by-pass and obsolescence

I love the megacap techs. I have been touting them and telling folks that is the one area I have any degree of confidence that you will get good returns.

CSCO, MSFT, ORCL, SAP, INTC.

I have not been ignorant of the potential for technological disruption or bypass. Rather my premise has been that these firms have a certain inertia, built-in momentum from existing client-bases, a balance sheet to take on any challenges/ers, and monopolistic margins to show their superiority.

That was then, this is now. Lest I forget the lessons of Kodak, Dell, Nokia, and Blackberry. I have made those mistakes before.

The treading of water by the megacaps in the market points to a tremendous skepticism and concern surrounding the uncertainty of their being able to make it to the other side.

The market is voting right now and saying these names are dead. They are dead because they can't make the hard decision to cannibalize a working monopoly in order to reinvent themselves. This is natural for any monopoly with an embedded vested bureaucracy. The market is saying the young upstarts are going to dominate: LNKD, N, CRM, WDAY. I am highly skeptical. The market appears to have already crowned these whipper snappers with valuations implying nothing but blue skies ahead. The old pseudo-monopolies may be monoliths and have trouble making the hard strategic decision to "blow a couple of years" in transition, but they also have a wager either side and are going to do their best to have it both ways.

Of the megas, Intel seems to be furtherest ahead in making the transition. Intel is taking it on the chin at the moment and has decided to reinvent itself again. Having missed the mobile/tablet revolution they are leveraging their superior resources to go after the new markets. If I were to hazard a guess, it looks to me as though they have made the hard decisions and are pretty well positioned to be competitive in the future.

Perhaps the best strategy is to sit this one out and see what happens. At the

The risk for those who don't make the transition is declining revenues and declining margins. With so much cash on the balance sheet and a vestige cash cow business they can go on for 10 years paying out dividends before they are put out of their misery.