Which High-Tech Dow Stock Has the World's Best Brand?

What's in a brand? Any investor who follows the Dow Jones Industrial Average (^DJI -0.11%) knows how important a strong brand can be -- and how damaging it is when a company's brand becomes tarnished. The index has undergone many changes over the years, and many of these changes were enacted in response to the diminished value of one brand or the strengthening of another.

Today, we'll be taking a look at the Dow's top technology stocks, comparing their brand values and public perceptions over time in an attempt to understand why many tech leaders have been mediocre investments for much of the past decade -- and how that might change.

Building brand value
Interbrand's 2012 Best Global Brands list places several important tech companies in the top 10. The tech sector occupies more spots and has more combined brand value than any other sector by a significant margin. Three of the top-10 tech brands are Dow components:

Source: Interbrand.

Until this past year, IBM (IBM 1.05%) owned the most valuable tech brand in the world, according to Interbrand. Microsoft (MSFT 0.37%) was right behind IBM in third place last year, which makes IBM's slide in the rankings this year all the more embarrassing. Intel (INTC 0.64%), the third Dow tech component in Interbrand's top 10, has been mostly flat for a decade, which reflects (as does Microsoft's slowly declining brand value) its flatness as a stock over the same time frame. When it comes to these three stocks, market cap and brand value have roughly moved hand in hand:

Sources: YCharts and Interbrand. *Google uses eight-year changes due to IPO and addition to top 100 list in 2005.

The growing importance of mobile has wrought many changes on the world's most valuable brands. Apple and Google have posted impressive growth rates in their brand values, but Android handset maker Samsung has also seen its brand value grow by 214% in the last decade. Amazon.com (AMZN -1.64%) is a big gainer this year as well, its brand value skyrocketing 46% to 20th place only a year after dipping its toes in the mobile water with the Kindle Fire.

You could argue that Interbrand is late to the game in raising Apple's brand value so much in one year, but the iPhone sales explosion really kicked in around 2010, with the iPad following a year later. Still, Apple was easily beating IBM in press attention, consumer visibility, cultural significance, and market cap two years ago. What has really changed? Apparently, Steve Jobs' death last year created a worldwide emotional bonding moment for consumers; Interbrand mentions him seven times in its 2012 write-up, while Apple's record earnings merit half of a sentence.

On the other hand, Dow component Hewlett-Packard (HPQ 1.55%) lost brand value this year, as did Dell  (DELL.DL), thanks to both companies' sorry efforts in mobile hardware, underscored by the all-too-obvious decline of the PC. Microsoft suffers the same problem, as its forays into the mobile-operating-system arena have so far been swiftly rejected.

Intel -- and, to a greater extent, fellow big-brand Dow techie Cisco (CSCO 0.06%) -- has benefited from the explosion in mobile traffic that has resulted in greater demands for connectivity hardware, particularly servers with Intel inside. That helps to insulate Intel somewhat from the PC's slow death, and Interbrand notes that "after years of talking about entering the smartphone space, Intel finally cracked the market, launching Intel-powered smartphones around the world."

Brand value can follow stock value, but can it predict future growth as well? Let's see what Interbrand says about our Dow brands' chances and how that matches up to our own experience as market watchers.

Behind the brands
IBM "continues to reinvent itself," and "Smarter Planet, IBM's groundbreaking business strategy ... remains a textbook example of how to create, build, and deliver a world-leading business-to-business brand." My fellow Fool Anders Bylund saw Smarter Planet really begin to make money for IBM in its most recent quarter, and business analytics -- which becomes more important as companies generate ever-more-precise data on every consumer -- grew by double digits.

IBM's brand has been synonymous with intelligent computing for decades. It even inspired the malevolent, all-knowing HAL 9000 in 2001: A Space Odyssey. IBM has also made global headlines by developing computers that defeated world champion Garry Kasparov at chess in 1997 and beat 74-time Jeopardy! winner Ken Jennings at his own game in 2011. As the company continues to push the frontier of artificial intelligence, it's likely to maintain a dominant role around the world as a go-to innovator for truly smart software.

Microsoft "has found itself in a bit of a holding pattern in 2012," but the success of Windows 8 "would catapult Microsoft forward and revitalize the entire PC ecosystem." Interbrand also points out Microsoft's health care efforts -- there are 22 million users on Live@edu -- and its focus on business users, but Microsoft's merger of hardware and software, most recently shown in its Surface tablets, "will likely define the brand's future."

That would be a big departure from the Microsoft many consumers know, with its "Start" menus and blue screens of death (or red rings of death, for Xbox owners). Microsoft's business focus is well-known, but the consumer-facing segments are where the company needs a facelift. Microsoft and Nokia's (NOK -0.81%) joint effort, the Lumia series of smartphones, saw a precipitous drop in unit sales in the latest quarter. Windows, the world's omnipresent operating system, just got a big update, along with a big strategic shift that puts Microsoft on less friendly footing with its major PC partners. It's Microsoft's last, best hope to remain relevant in the mobile era. The company's current rebranding campaign, which portrays Windows as a hip and accessible mobile alternative to the Big Two, will have to work in order to prevent further erosion in its brand strength next year.

Interbrand seems to think Intel has a better shot at mobile stardom than Microsoft: "Intel is shifting from a technology first mindset to one of user first. ... If early success and internal changes are any indication, Intel will be a brand to look to for years to come." Focusing on the users of Intel-equipped devices makes a certain degree of sense, but I'm not sure this strategy is as vital to Intel's future as Interbrand believes. The important thing for users is that the devices work well -- not that a particular brand controls the hardware functions. That means partnerships with leading mobile-device makers are key. How does Intel's brand look to its potential customers?

Results are mixed thus far. Intel has a place in a number of tablets, including Microsoft's Surface, but it's not yet part of the most notable tablet brands -- at the moment, iPads and Kindle Fires. It's also powering six new smartphones, but you're not likely to know which ones they are, as none of the devices are sold in the U.S. market. Intel's place in the higher-end Surface tablets will go a long way toward legitimizing its processors as a viable alternative to the ARM Holdings (ARMH) hegemony of licensees that currently dominates mobile, but it's nearly as big a risk for Intel as it is for Microsoft. We should soon find out whether Wintel 2.0 catches on with consumers and convinces future hardware partners of Intel's viability.

IBM ias in the strongest position today, thanks to its shift away from consumer markets and a rediscovery of the business-focused innovation that has driven much of its past success. Microsoft and Intel have significant business-focused operations, but both still depend on the global consumer for growth. That puts their brands in greater danger in a new portable-computing landscape dominated by Apple and Google, but it's also a big opportunity. Strange as it may seem, Microsoft and Intel are the underdogs in this mobile fight, and America loves its underdogs -- so long as they have a chance.