Anybody who has grown up in the Boston area has spent plenty of time on Route 128, usually sitting in traffic and fighting off bouts of road rage. But time behind the wheel also has provided an opportunity to witness the evolution of the U.S. technology industry.
Route 128 is a highway that runs in a rough semicircle around Boston and has long been home to various technology and health care companies, from small startups to global giants. It’s our answer to Silicon Valley — minus the nice weather. And if you pay attention, watching the companies come and go provides a lesson about technology investing.
Our story picks up in the 1980s, when the “minicomputer” companies dominated the landscape on Route 128. Veteran investors will remember the names Digital Equipment, Wang Laboratories, Prime Computer and Data General, which enjoyed tremendous growth rates as minicomputers replaced the huge mainframes. Their success came to a halt in the late ’80s, however, when all four companies were swept under the wave of the personal computer revolution.
Although they tried to adapt through a variety of survival strategies, the dawn of personal computers and desktop workstations marked the beginning of the end. Today, their stock certificates exist only as collectibles — and Route 128 is home to companies such as Thermo Fisher Scientific (NYSE:TMO).
For investors, the message is clear: Once a company falls behind the technology curve, “value” investing goes out the window.
Research In Motion (NASDAQ:RIMM) is a case in point. Since the launch of the iPhone 4 in June 2010, RIMM shares have lost 82% of their value. At no point has the stock offered investors a value play, even as its P/E crashed into the single digits.
Nokia (NYSE:NOK) is another example. I foolishly recommended the stock as a value on Feb. 14 when it was trading just above $5; today it’s under $3. Clearly, I missed the point: Once a company starts scrambling to play catch-up, it doesn’t matter how much cash it has on its balance sheet. Nortel, Kodak, Palm and Motorola are among the many stocks that cost investors dearly once their technologies fell behind. Investors can only wonder if Hewlett-Packard (NYSE:HPQ) also will join this dubious roster in the years to come.
In short, phrases like “turnaround story” and “reinventing itself” rarely have a place in a discussion about any tech stock. Once a company’s technology starts to go out of date, the odds of the stock making any serious money for investors — aside from the occasional dead-cat bounce — go down significantly.
Unfortunately, the Apple (NASDAQ:AAPL) story only serves to obscure this larger point. The mythology of a business that lifted itself out of irrelevance to become the largest company in the world captures the imagination — but it also provides false hope. History has taught us that a tech turnaround is far more likely to go the way of Data General than it is Apple.
If there’s any doubt, just take a drive on the section of 128 that runs through Waltham, Mass. The picture below is the old Polaroid headquarters as it appeared on June 13. The company — which seemed destined to change the world of photography back in the early 1980s — is on life support, and its former home is being reduced to dust.
And how did I snap this photo? With an iPad, of course.
As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.