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Well, here we are yet again, folks. With Alcoa reporting quarterly results yesterday, earnings season is officially upon us, which can mean only one thing: Volatility is about to rear its ugly face once again.
I have to admit, it's been a calm couple of months. Not seeing the Dow Jones Industrial Average whipsawing 300 points in a day as the norm has a beneficial effect on one's sleep habits -- but, complacency is also the investors' prime enemy.
With that being said I took some time last week to scour the tech sector in the hopes of finding some potential winners and losers for the first-quarter of 2012. What I found was a disturbing number of potential losers. Economic data, including the lowest unemployment rate in nearly three years and a robust PMI figure, would indicate that the U.S. economy, while sluggish, is still growing. This news, unfortunately, doesn't necessarily translate to gains for tech companies, which often derive a significant portion of their revenue outside of the United States. Even with the U.S. economy on the mend, there are a few tech companies that I wouldn't touch with a 10-foot pole this quarter – even if you paid me!
So without further ado, I give you three tech names that I'm not going near this earnings season:
Dell (Nasdaq: DELL )
Yeah, I'm going to pick on Dell again. Despite beating earnings expectations in every quarter since the fourth quarter of 2009, Dell has missed revenue expectations in five straight quarters according to CapitalIQ's estimates.
My main beef with Dell has always been the Mickey Mouse way it inflates its earnings without really growing its business. In its latest quarter the computing giant repurchased 142 million shares, or 4% of its outstanding shares, which provided an instant EPS bump. If you look past this purchase you'd see that its storage, software and peripherals, mobility, and desktop PC segments all logged year-over-year revenue declines.
Apple's (Nasdaq: AAPL ) iPad and the 166% increase in unit sales it logged during the fourth quarter; Amazon.com's recently introduced Kindle Fire; and Dell's own inability to innovate are crushing this once iconic computer company into irrelevance. Is another EPS beat from Dell likely this quarter? Probably, but that still doesn't mean I'm going anywhere near it. As far as I'm concerned this stock is a dead duck in the water.
Sony (NYSE: SNE )
Does anyone know what's worse than three straight years of losses? The answer: four straight years of losses, which is exactly what Sony warned investors to expect in November.
The electronics producer has been a mangled mess of its former self for years and this past quarter may just have taken the cake. Sony reduced total TV unit sales by 9% and warned that its TV division would lose money for the eighth consecutive year! Sony doesn't anticipate its TV segment will be profitable until at least 2014 and it has heavy competition from Samsung and LG to thank for that.
You think that's bad? Take a gander at sales of the company's "highly anticipated” new portable gaming device, the PS Vita. According to fellow Fool Rick Munarriz, who's been a staunch advocate of throwing the Vita off a bridge since June, PS Vita unit sales plummeted from 320,000 in its first two days to a pitiful 43,000 by the third week. I'm not sure Sony could find its way out of paper bag at the moment and would highly recommend avoiding it until its TV division is profitable once again.
Research In Motion (Nasdaq: RIMM )
I wonder if ESPN would let me borrow Mike Ditka for when RIM announces its fourth-quarter and full-year results in March so I can have him repeatedly say, "Stop it!" After stubbornly supporting RIM for many months, I've finally come to the realization that while the stock may already appear cheap, there's still plenty of pain ahead for shareholders.
In its latest quarter, the two-headed wealth-destroying monster known as Balsillie-Lazaridis warned investors that earnings estimates were going to fall yet again. The company's iconic BlackBerry smartphone has fallen off a cliff, accounting for just 9% of U.S. smartphone market share compared to 24% in the year-ago period. Even worse, with the company's phones collecting dust on many retailers' shelves, RIM was forced to reduce its phone shipment forecast to a range of 11‒12 million phones in the fourth quarter, down from the 14.1 million it sold in Q3.
Perhaps RIM's biggest gaffe has been the handling of its tablet, the BlackBerry Playbook. RIM announced a not-so-tiny $485 million writedown related to the 60% pricing haircut the Playbook received in the third quarter. The worst part? The Playbook still isn't selling at all, while Apple's iPad continues to crush its competition. If I had to pick one company I'm almost sure will issue an earnings warning this quarter, it'd have to be RIM.
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