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3 Tech Stocks Facing the Blue Screen of Death

The Post-PC age does not bode well for these aging companies

Laptop185 3 Tech Stocks Facing the Blue Screen of DeathFor the record, I do not believe that PCs are going to disappear forever. While there is a great deal of growth in mobile and a necessity in embracing cloud computing, there still is a lot of money that can be made in regards to desktops and laptops.

However, it remains clear that the PC pie is shrinking — and since growth is the name of the game, companies that have failed to develop alternative revenue streams or increase their reach are doomed to decline.

You know some of the biggest players in mobile: Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and Samsung (PINK:SSNLF) to name a few. But let’s look at the other side of the coin today with some of the biggest flops in the PC arena.

Namely, Hewlett-Packard (NYSE:HPQ), Seagate Technology (NASDAQ:STX) and Advanced Micro Devices (NYSE:AMD).

Here are the specifics on why I think these picks are about to see the blue screen of death:

Advanced Micro Devices

AMD1 3 Tech Stocks Facing the Blue Screen of Death

5-Year Return: -85% vs. -9% for the S&P 500
YTD Return:
-64% vs. 11% for the S&P 500

In full disclosure, I am not a super bear on the entire old-guard chip industry. I actually just bought into Intel (NASDAQ:INTC) and recently and made my case for the stock here.

However, two of my main reasons for investing in Intel — the nice dividend and the mammoth scale to provide stability — are decidedly lacking from Advanced Micro Devices (NYSE:AMD).

AMD didn’t even crack the top 10 of semiconductor market share with a mere 2.1% reach, according to a March report from industry analyst iSuppli — compared with a mammoth 15.6% share for Intel in the top spot.

Furthermore, AMD doesn’t pay a penny in dividends. So much for stability there.

AMD isn’t just a sitting duck, of course. Its Hondo mobile processor holds promise, if it can gain traction. However, Intel has the power of scale and dominance, and can keep driving down pricing to punish AMD on the margins, even if its products are good. The result is a challenging environment where secular trends are weighing on the business, margins are razor-thin thanks to Intel’s browbeating on prices, and the company is struggling to simply keep its head above water.

Here’s where we get to the biggest problem of all: Right now, AMD actually is operating at a loss and is projected to lose money again in 2013. The company recently unveiled plans to eliminate 15% of its work force, or about 1,800 jobs, to deal with the cash crunch.

It’s a sad state of affairs when you’re a laggard in your sector, the sector in general is declining and you don’t have a significant cash cushion should the tough times continue.

I wouldn’t mess around with AMD at all. There’s a very good chance that this stock won’t be around at all in the next year or two.

Hewlett-Packard

HPQ1 3 Tech Stocks Facing the Blue Screen of Death5-Year Return: -73%
YTD Return:
-49%

Those of you who thought it was impossible for Hewlett-Packard (NYSE:HPQ) to go any lower have been forced with an ugly reality in 2012: The bottom has not been reached, and it could be a long way down in the near future based on recent information.

Consider HP has suffered four straight quarters of year-over-year revenue declines. Consider that in Q3, it posted it worst quarterly loss in the history of the company thanks to mammoth writedowns associated with restructurings and botched buyouts. Consider that even if you exclude one-time charges, profits fell 9% year-over-year anyway. And it cut its 2013 guidance to boot.

Most importantly, consider that Meg Whitman called an analyst event in October that was simply designed to plead for patience and tout a snail’s-pace turnaround that wouldn’t get HPQ poised for growth until 2014 — and only then if all the cards fell right.

Sure, HP has a 4% dividend yield that is very sustainable, but that’s not enough of a reason to buy. This is a company that has wasted the past five years on musical chairs in the corner office and multiple failures in product development.

The PC and printer business at HP is slowly declining both nominally and on a market-share basis — Hong Kong’s Lenovo (PINK:LNVGY) just overtook HP as the world’s top PC maker — and there’s nothing to replace that lost revenue. Whitman hopes enterprise software will pick up the slack, but competing with the likes of Oracle (NASDAQ:ORCL), Cisco (NASDAQ:CSCO), Juniper (NYSE:JNPR) and other entrenched names will be no easy task.

HP won’t disappear anytime soon with $9.9 billion in gross cash in the bank as of last quarter. But if this is its grand vision, investors are better served looking elsewhere in tech.

Seagate Technology

Seagate185 3 Tech Stocks Facing the Blue Screen of Death5-Year Return: -1%
YTD Return:
+63%

Don’t let Seagate Technology (NASDAQ:STX) fool you with its outperformance. This stock has been a big momentum play in 2012, but that ride is about to come crashing to a halt for two reasons.

In the short-term, the easy YOY comparisons due to supply chain disruption in 2011 are ending. In the long-term, this disk drive stock will come to grips with the secular reality of a post-PC age and the rise of flash memory technology.

Consider that in its most recent quarter, Seagate reported EPS of $1.45 a share — far short of the $1.67 forecast. And the only reason sales didn’t disappoint was because the guidance was lowered in advance of the report. Margins were soft, enterprise sales were weak and that old boogeyman of “global macroeconomic uncertainty” was blamed for sapping momentum. Seagate actually is off 20% in the past three months as a result.

The hard reality is that Seagate stepped over some very low bars earlier in the year thanks to supply chain disruption in 2011 caused by flooding in Thailand. The result was better margins, some pent-up demand and easier year-over-year comparisons. This lulled some folks into a false sense of security — sending shares up 240% from lows in September 2011 to this year’s peak back in May.

That clearly was overly optimistic, and now the fundamentals are deteriorating. Margins are soft, the total available market is stagnant at best, and competitor Western Digital (NASDAQ:WDC) has eaten into some of Seagate’s market share.

Long-term, the growth of hard disk sales is going to be much harder to come by. As with HP, you have a nice dividend in STX right now (4.5%) and a pretty solid balance sheet. This company won’t evaporate in 2013, but it won’t deliver big gains, either.

Seagate is moving onto new things, to be sure. The company plans to introduce new enterprise and ultra-thin hybrid hard drives going forward and wants to get into solid state disk drives more ambitiously. But whether those efforts come to fruition in time to help out current investors is doubtful.

If you haven’t cashed out of Seagate yet, do so before the music stops and the company makes another leg down.

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he held a long position in Apple but none of the other stocks named here.


Article printed from InvestorPlace Media, http://investorplace.com/2012/11/3-tech-stocks-facing-the-blue-screen-of-death/.

©2014 InvestorPlace Media, LLC

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