Overall, 2014 was a fairly strong year for the tech sector. It's an imperfect measure, but the Nasdaq Composite outperformed the broader S&P 500, with the performance of a few highfliers even arousing fears of a second tech bubble.
But not every tech stock was a winner in 2014 -- indeed, many of the year's most significant under-performers were members of the tech sector. Below three Motley Fool contributors comment on three notable tech stocks that burned investors this year - IBM (NYSE:IBM), GT Advanced Technologies (NASDAQOTH:GTATQ), and AMD (NASDAQ:AMD).
Bob Ciura (International Business Machines): My pick for the most disappointing technology stock is IBM. Year-to-date, shares of IBM are down 12%, badly lagging behind the 12% gain for the S&P 500 Index. To be sure, IBM has some clearly successful businesses that make me think there's hope for better performance next year, namely IBM's cloud-based segments. Cloud revenue jumped 50% over the first nine months, year over year. For cloud delivered as a service, revenue soared 80% to reach a $3.1 billion annual run rate. Another source of strength was the business analytics unit, which saw revenue increase 8% through the first three quarters, year over year. These are forward catalysts that could allow IBM's long-awaited turnaround to materialize.
But it isn't that simple for IBM because it continues to be weighed down by its hardware business, which posted a 15% revenue decline last quarter. The segment generates 11% of IBM's total revenue and has helped drag total revenue down 3% over the first three quarters.
IBM is finally realizing it needs to get away from hardware, but it's been slow to act and has had to pay a steep price for this. In October, the company announced it will rid itself of its semiconductor business. What stands out about this deal is that IBM is actually paying chipmaker GlobalFoundries $1.5 billion to take the money-losing semiconductor business off its hands. This reveals just about all investors need to know about IBM's position in hardware.
Jason Hall (GT Advanced Technologies): GT Advanced Technologies takes this one easy, considering the company's recent bankruptcy filing. GT Advanced – a maker of equipment used to manufacture and process solar systems and advanced materials like silicon and sapphire – signed a transformative deal with Apple that backfired in a very big, very destructive way.
The most disappointing thing about what happened with GT Advanced? How unbelievably unexpected it was when the company filed for bankruptcy protection. It absolutely came out of nowhere. What exactly happened? Foolish colleague Evan Niu wrote this piece describing how one-sided the Apple deal was, but the reality is Apple wasn't the only "bad guy" in this situation. GT management got the company in over its head, and out of its area of expertise.
The deal with Apple was for GT to produce sapphire for Apple, while GT had never been a materials supplier. The company's move away from what it was good at – developing innovative technology for manufacturing, and selling that technology to the manufacturers – led to common shareholders getting wiped out. The lesson? Beware of companies that become too dependent on only a few customers – especially if that dependence is also tied to the company doing something it has never done before.
Sam Mattera (Advanced Micro Devices): Year-to-date, shares of AMD are down more than 33%. Its sell-off, relative to the broader market's gain, is bad enough, but AMD's performance is made all the more disappointing by the returns offered by its chief rival, Intel, whose shares have surged more than 40% this year.
AMD's management has been working to shift the company away from its dependence on traditional PCs, but the PC market still drives the bulk of the company's earnings and revenue. Traditional PCs experienced somewhat of a resurgence in 2014, with demand from business users helping to reverse the sharp declines seen last year. Unfortunately for shareholders, AMD was unable to capitalize on a rebounding market. Perhaps as a consequence, AMD's former CEO, Rory Read, resigned from the company in October, just days before it turned in its quarterly report. His replacement, Lisa Su, may be better able to steer AMD going forward, but the announcement -- a complete surprise -- and its timing only intensified AMD shareholders' pain.
There may be hope for the future: AMD's next-generation graphics processors appear promising, and the company could roll out a new PC processor platform in 2016. Still, with a stronger PC market, AMD shares should've performed better in 2014, making it one of the year's most disappointing tech stocks.
Bob Ciura owns shares of Apple. Jason Hall owns shares of Apple and Intel. Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, and International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.