Time to Turn High-Tech "Rust" into Gold

Michael A. Robinson

As a tech analyst I spent my early years in Detroit, and I know a lot about the Rust Belt.

In fact, when I moved to the West Coast in the mid-1980s, I drove a Honda that had already started rusting. Every once in a while, some wag would come up and ask if I was from the Midwest.

No doubt, rust like that was obvious. But in my more than three decades of working with Silicon Valley companies, I've found high-tech "rust" may be a lot less obvious and much more insidious.

The good news is that while this "rust" often takes down companies, it happens to be setting up three cash-generating firms that are handing us a big opportunity now…

How Rust Created Huge Profits for the Next Generation

When I say high-tech rust, I'm talking about firms that have stayed with an old line of business or an ingrained management style that causes them to miss huge shifts in the ever-changing tech landscape.

Of course, by its very nature, technology's relentless pace of innovation means once-great leaders can suffer blows that turn out to be fatal.

Wang Laboratories was one of the hot computing companies of the late 1970s and early 1980s. But in just a few years, the company went from running Super Bowl ads to filing for bankruptcy protection.

The story is even worse for Eastman Kodak Co. (NYSE: KODK). It actually invented the digital camera back in 1974 but instead focused on its thriving film business – until it was too late.

Kodak filed for bankruptcy protection in 2012 and emerged last year as a publicly traded firm.

But here's the thing. Even the rustiest of companies, the ones who have missed opportunity after opportunity to shift with the market, can still recover and flourish once again.

So, today, I want to take a look at three leaders that are cleaning off their rust to offer investors market-beating gains. Let's start with one of the oldest tech firms around.

Rust-Buster No. 1

Big Data

International Business Machines Corp. (NYSE: IBM) has worked for years to cut its dependency on hardware sales and transform itself into more of a global leader in software, services, and other growth sectors.

As a long-time defense analyst, this is something I have tracked for years because IBM is such an important federal contractor. I've even spoken with the head of the company's federal operations.

This was after IBM sold its sinking PC business in 2005 to Lenovo Group Ltd. (OTC: LNVGY). That was clearly an important break from the past for a tech leader that traces its roots all the back to the 1880s.

But it simply wasn't enough…

In this year's first quarter, sales at its systems-and-technology division, which includes its hardware business, dropped 23% to $2.4 billion. That marked the 10th consecutive slide in sales for that division.

So, it's a good thing IBM dumped another hardware unit earlier this year when it sold its low-end server unit to Lenovo for $2.3 billion.

Join the conversation. Click here to jump to comments…

Michael A. Robinson

About the Author

Browse Michael's articles | View Michael's research services

Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.

… Read full bio