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Tech Firms Facing the Abyss

There seems to be quite a few tech companies in trouble these days. In fact, in an article published yesterday on 24/7 Wall Street, tech firms represent six out of the eight major companies listed as being in troubled financial waters. There aren’t any surprises here for anyone who’s been paying attention, but a year or so ago most of us wouldn’t have suspected that some of these companies would even be capable of falling on hard times.

Topping this list is Best Buy. Although we’ve known for some time that the company is ailing, this is still something of a surprise given the recent history of consumer electronics retailing. After all, it was only a couple of years ago that Best Buy’s main competitor, Circuit City, floated to the surface face down, killed by intense competition from…you guessed it, Best Buy. For the latest quarter, the chain’s net income dropped $77 million from the same quarter last year, from $254 million to $177 million.


The common wisdom is that Best Buy is being undone by online competitors – and the company’s management is taking that bait and announcing they’re beefing up their online store by offering products from third party vendors, among other methods. However, writer Laura Heller, who’s been closely watching the retailer since the 1990s, has a different take. In an article posted on Forbes yesterday, she blames the decline on the laziness that can result when meaningful competition is removed. In a nutshell, with no monster competitor breathing down their backs, the folks running Best Buy have quit innovating:

“It’s hardly Best Buy’s fault that the items it sells so rapidly become commodities, stripped of profit margins and sold so easily online. But neither is that a new phenomenon in consumer electronics. Tablet computers may be emerging technology — and profit center — but will go quickly go the way of PCs, mobile phones and plasma TV.

“Opportunities lie where others are weak, not where the competition is strong. Instead of focusing on developing a marketplace or online initiative similar to Amazon’s, or touting quickly commoditized products like tablet computers, Best Buy might be best served by doing what it does best, differentiate.”

Another tech firm that’s on the verge of being Darwinized out of existence is RIM, whose light has faded so fast it’s hard to imagine that until fairly recently they pretty much owned the smartphone market. Remember, it was only five years ago when widespread panic ensued after it appeared as if the “Crackberry” email network would be taken down over a patent issue. If there was a repeat of that situation today, most Blackberry users would just shrug, and line up at their local wireless provider to purchase an Android or an iPhone.

RIM’s troubles are textbook examples of two related classic mistakes. First, they failed to stay ahead of the competition and let iPhone and Android take them by surprise. Second, after realizing they were being clobbered by these two rivals, they’ve been in no big hurry to play catch-up. Put another way: they’ve let Google and Apple do the same thing to them that they previously did to Palm.

Next on the list: Hewlett-Packard. Up until about a month ago, I put HP in the same category as companies like IBM or Coca-Cola – you know, firms that are sure to still be around a few hundred years from now when Star Trek’s Picard is admonishing Riker to “make it so.” That was until freshman CEO Léo Apotheker, just hired after an unsuccessful stint at SAP, announced his plans to reform the entire company into something along the lines of Mattel. The enlisted men at HP have been busy bailing ever since, trying to avoid a full scale capsize.

As far as I’m concerned, no amount of damage control from Apotheker can undo the damage he’s done. There is a fix however. HP’s board can fire and replace him. I would suggest they find somebody competent this time.

Nintendo is also in trouble. I’m not a gamer (I don’t even play Solitaire) so I’m the wrong person to ask about this one. All I can tell you is they’ve lost ground to both Xbox and PlayStation. In addition (this doesn’t surprise me) they’re also losing to game apps on mobile devices. Again, the use of these games baffles me, so I really don’t know nor care what this is about, except if I had to choose I’d prefer if Microsoft failed – but that’s just me.

And then there’s Cisco. At the height of the dot-com boom, Cisco was briefly the largest company on the planet, with a market cap of over $500 billion. Their current problems are partly because they’ve sought to expand into consumer electronics, which has caused them to lose focus on their core router business. Now, it appears they’re in the process of restructuring, which means closing some of their non-core businesses and cutting over 6,500 jobs.

CEO John Chambers is also planning to aggressively go after key networking competitors, such as Juniper, HP and Huawei. In an article posted Sunday on eWeek, Yankee Group analyst Zeus Kerravala says this move is long overdue:

“’It was something they should have done years ago,’ he said in an interview with eWEEK. ‘Cisco has been distracted and did take their eyes off the networking ball and let some competitors come up and surprise them.’

“For too long, Cisco executives let Juniper, HP and others make claims against Cisco, and after time, with Cisco not defending itself, those claims began to take hold with customers, Kerravala said.

“‘Now we’re seeing how the new Cisco is going to be very aggressive,’ particularly at a time when its competitors are dealing with their own issues, he said. HP is undergoing a massive transformation that reportedly is making customers nervous. At the same time, Juniper’s latest quarterly financial numbers were down.

“For its part, Cisco is still in the midst of restructuring, but seems to be making the right moves, Kerravala said.”

The one thing to remember here is that Cisco is used to being a comeback kid. After the dot-com bubble burst, it took them forever to get back on track enough to make Wall Street happy – but they did. My guess is, they’ll do it again.

Ending the list is Eastman Kodak, the company that for generations brought the world “Kodak moments.” Most of us who are over thirty have fond memories of Brownie and Instamatic cameras, and Kodachrome and Kodacolor film.

It’s hard to fault the Rochester, New York company that pioneered film photography almost single-handedly for failing to successfully make the leap into digital photography. Although they’ve done some great research and development, as evidenced by their valuable patent portfolio, they’ve been unable to break the public’s perception that they’re not much more than an old fashioned film company.

I figure the money boys are right on this one. Kodak will divest itself of it’s patent portfolio and get back to their traditional business of making film. They’ll be a much, much, much smaller company than they were in their heyday, but they will survive, as there will probably always be uses for film.

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The good thing here is, with the possible exception of HP, there’s not a single major FOSS player on the list. And even in the unlikely event that HP was to go under, their FOSS strength is in the server market, and I don’t think LAMP servers are going to be threatened anytime soon – no matter who goes under.

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Christine Hall has been a journalist since 1971. In 2001, she began writing a weekly consumer computer column and started covering Linux and FOSS in 2002 after making the switch to GNU/Linux.

7 comments to Tech Firms Facing the Abyss

  • Grim

    Maybe if you played video games your articles wouldn’t be so dry. :)

  • Ken Hawkins

    No sympathy here for HP, who screwed themselves out of the corporate market with shoddy product and lousy service. HP is verboten in my organization, and while we are small, there are a lot of SMB’s who cannot afford to drop a couple of grand on printers that crap out in less than a year, and have also banned HP.

    No sympathy for Cisco either, whose customers service is at least sociopathic, if not sadistic. The sad part is that the CEO’s who do this damage, never seem to have to suffer the consequences. I think that there should be capital punishment for those who don’t live up to their fiduciary obligations.

    just my rant against the machine

  • There’s always a wise guy lurking around on the web, eh Grim? Good moniker, BTW. ;-)

  • Good rant, Ken. And, not only do the CEO’s not “have to suffer the consequences,” as you say, they usually get millions in severance packages when they’re canned for their incompetence.

  • Grim

    Sorry to seem like a “wise guy” but you don’t realize the amount of *NIX users you deter with statements like; “Again, the use of these games baffles me, so I really don’t know nor care what this is about”. If it were not for games, we would not have the technology we have today. The more and more powerful gaming engines become the more horsepower gamers demand from their video cards and CPU’s. Do you think NVidia would have pushed CUDA if it were not for games? Think how far back super computers would be without those 400+ core GPUs humming along in their ranks? You should care a lot more about the gaming industry and the companies that back them.

  • Hi Grim! Don’t get me wrong, I have absolutely nothing against games. In fact, my roommate is a big gamer, and I’m constantly installing and tweaking games on her computer for her. I’m also very well aware of the added horsepower we have on our modern computers because of the requirements of cutting edge gamers. There have been other technology advancements also brought about by gamers.

    That being said, I’m not a gamer. It’s not in my make-up. I don’t really understand the fascination people have with gaming, just as a lot of my friends don’t understand my passion for Eric Ambler novels. My purpose for mentioning this in the article was only to be honest. As I said, I’m the last person you should ask if you want to know why Nintendo is in trouble. I don’t understand the industry with the depth that a tech watcher who’s passionate about games does.

  • [...] Tech Firms Facing the Abyss There seems to be quite a few tech companies in trouble these days. In fact, in an article published yesterday on 24/7 Wall Street, tech firms represent six out of the eight major companies listed as being in troubled financial waters. There aren’t any surprises here for anyone who’s been paying attention, but a year or so ago most of us wouldn’t have suspected that some of these companies would even be capable of falling on hard times. [...]