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.

Michael A. Robinson

About the Author

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Michael A. Robinson is a 35-year Silicon Valley veteran and one of the top technology financial analysts working today. He regularly delivers winning trade recommendations to the Members of his monthly tech investing newsletter, Nova-X Report, and small-cap tech service, Radical Technology Profits. In the past two years alone, his subscribers have seen over 100 double- and triple-digit gains from his recommendations.

As a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs and high-profile industry insiders. In fact, he was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon. And he was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.

In addition to being a regular guest and panelist on CNBC and Fox Business Network, Michael is also a Pulitzer Prize-nominated writer and reporter. His first book, "Overdrawn: The Bailout of American Savings" warned people about the coming financial collapse - years before "bailout" became a household word.

You can follow Michael's tech insight and product updates for free with his Strategic Tech Investor newsletter.

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