In a recent article, I highlighted the benefits of Apple's ecosystem or "its reach" by pointing out a few names that will benefit from its success. In this article, since the preceding article discussed the athletic prowess of Apple, let's understand that for every Michael Jordan, there has to be a Karl Malone - while great in his own right, was victim of his time with Jordan. Similarly, for every Joe Montana, there is a Dan Marino. In other words, very rarely do two champions occupy the same stage or the same time. On that note, here are some stocks that I feel will suffer because of Apple's success or the "Joe Frazier-types" to the Muhammad Ali that is Apple.
Research In Motion (RIMM)
Research In Motion is the biggest no-brainer here. It stands to reason that since the company has been in a death spiral as Apple commenced its ascent, it will likely maintain such status as Apple's supremacy grows. The question for RIM is, how much downside risk does the company still have considering that performance expectations are so low? With the hiring of a new CEO, the company has bought itself a little bit of time while it sorts things out. However, it doesn't seem as if it will be much of a difference from the old regime.
Will the company be able to execute in the manner that it needs to in order to convince shareholders that it has what it takes to perform a resurrection to the extent of that of Apple at the beginning of 2001? That too remains to be seen. One of its advantages is that it still has a big stronghold in the enterprise. Along with Mobile Fusion, the company should seek to scale down some of its operations by discontinuing legacy platforms and commit to offering strictly enterprise business services, but its execution has to be precise and its investors have to forget the past. But regardless of how it performs from here on out, it is hard to consider that the space is remotely big enough for any potential success that it may have and that of Apple's. Unlike the competition in other sectors where there is clearly enough room for two rivals such as Sirius XM (SIRI) and terrestrial radio. However in RIM's space, the race is clearly over.
As with Apple, Amazon has become successful in disrupting the way we buy our products and the way that we enjoy them. The Kindle Fire is one such example and I have to think that its creation was motivated by Apple and the iPad's dominance. For as brilliant of a CEO that Jeff Bezos is, it is undeniable that Apple forced him to enter the tablet race - one where the pursuit has proven to not be as laughable as the other carnage left behind by Apple such as the aforementioned RIM. But as with RIM, some companies are just unable to keep up or essentially always are playing catch-up.
Clearly Amazon deserves more respect than this, but with that respect comes the acknowledgement from Apple that they are indeed a formidable opponent. For all of the early success of the Kindle Fire, Apple is only a "large version of the iPod touch" away from extinguishing the euphoria over the $200 tablet. But Amazon will not go down easy. It has shown not only that it has the ability to execute but it is also keen on its evolution into untapped growth areas. But regardless of its execution prowess, it goes without saying that it is hard to pass a leader when you're always playing from behind.
It should be cause for concern whenever your primary source of revenue comes from selling personal computers. It goes without saying that the success of tablets and smart phones has placed the PC market on the decline. This is the predicament in which tech giants DELL and Hewlett Packard find themselves. Dell in particular cannot afford any more share loss though it has been widely known that its PC sales have been on a steady decline for the past two years. In its most recent quarter, the company reported net revenue that was essentially flat, at $15.4 billion, and consisted of a 2% drop in product sales.
Beyond services, the remaining segments of its business posted negative growth, with the largest declines in storage and desktop PCs, which fell 15% and 6%, respectively. It's the results of the desktop PCs and storage units that tell how critical this situation may become as it was already one of the poorest performers of its business.
Hewlett Packard (HPQ)
Hewlett Packard is another company that cannot afford hiccups of any kind since it is now just warming up to its new CEO in Meg Whitman. During its recent earnings announcement, the company did a decent job of assuring investors of its new future and a possible restoration of prominence, but there was also evidence that it is still suffering from poor execution and lack if investment spending. It reported Q4 non-GAAP net revenue of $32.3 billion, down 3% from the same quarter in 2010.
The company posted non-GAAP diluted earnings per share of $1.17. Analysts expected HP to post earnings of $1.13 a share on revenue of $32.05 billion. The company had indicated plans to focus heavily and inject capital into its PC division as well as its IT services business which includes boosting research spending and limiting the size of acquisitions. This is a far stretch from the company's previous strategy that involved neglecting some of its key assets. How much of its internal investments it will be able to recover remains to be seen. But it certainly does not look promising for anyone in Apple's space. Oh, and by the way, it's still trying to push its TouchPad tablet. Your guess is as good as mine as to why.