The technology sector is often discussed as a great place for investor capital because there are so many large cap companies with growth potential and lots of excess cash. The balance sheets are touted by Wall Street experts who love the exciting nature of their products. While companies like Apple (AAPL) and IBM (IBM) still appear to have very bright futures, there are some technology companies that face murky futures. Let’s take a look at two past tech giants whose prospects have dimmed.
Research in Motion (RIMM)
RIMM) was one of the most dominant players in the smart phone market. The Blackberry was an innovative product that was loved by business users around the globe. Since the emergence of the iPhone (AAPL) and Android (GOOG) phones, Research in Motion has seen its market share continue to erode. Google and Apple have both gained market share over the past three months, with Google accounting for 36.4% and Apple 26% of the smart phone platform market share. That is an increase of 5% and 1.3%, respectively. Research in Motion dropped 4.7% to 25.7% of the smart phone market.
The company is still forecasting earnings of $7.50 a share which seems incredibly optimistic in the face of all the challenges facing the smart phone provider. That has led many investors to start abandoning ship. The stock is clearly reflecting the declining market share with its shares in freefall. Research in Motion’s shares have recently taken out their 52-week low and trade at $36 a share. Investors are losing patience with company management and calling for a shakeup at the top.
If Research in Motion is forced to guide earnings downward, the stock could come under more pressure.
The situation at NOK is even worse than the problem at Research in Motion. Shares of Nokia are down to $6 and the company’s market share has been eroding at a rapid pace. The company has no signature product to hang its hat on; at least Research in Motion still has the Blackberry and Playbook. Nokia is putting all of its hopes in its coming line of Windows-based phones. The company is hoping that this will increase its presence in the smart phone market.
Nokia’s situation is so bad that the company is not even issuing a forecast for the year. When a company has no idea what its earnings could be for the year, investors should steer clear. Nokia is still paying a dividend despite the fact that the payout could be higher than the company’s projected earnings for the year. A dividend cut is likely, as the company will need to conserve cash as it tries to reorganize.
If investors had to pick one of these companies to speculate on, then Research in Motion would be the better play. Both companies are flawed, but a turnaround at Research in Motion is much more likely than at Nokia. Nokia management has been slow to react and has made mistakes with inventory management. The company could easily become the next Motorola (MMI).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.