Technology stocks are usually exciting companies with new, innovative products that drive their corporate earnings. Technology stocks that don’t evolve or make errors in forecasting the future of their market are in trouble. Such is the case with both Sony Corporation (NYSE/SNE) and Sharp Corporation (Pink Sheets/SHCAY). Both of these former giants in their industry are now relegated to the sidelines with billions of dollars in losses. With corporate earnings bleeding red, investors are questioning the very essence of the future for both of these companies.
Sony came out with its worse loss ever: $6.4 billion. The firm is now looking to eliminate up to 10,000 jobs to boost corporate earnings. When technology stocks cut back so severely, this usually means they have far too many people working for the firm and they are not being productive. A bloated infrastructure. To help corporate earnings, I do welcome a leaner corporate structure, as long as the cuts don’t impair the research and development operations that come up with new designs and innovations. However, can we really say that Sony has been innovative at all over the last decade, losing market share in every category, especially against Apple Inc. (NASDAQ/AAPL)? I wrote an article on this topic back on February 10, 2012, entitled; Can Sony Rebound Before Apple Enters the Ring?
It appears the problems affecting Sony also are pervasive in many other Japanese firms, like Sharp. Sharp just announced its corporate earnings with the statement that the annual loss forecasted will be the largest in its 99-year history. The full release will be on April 27, but the firm gave us an early look and it states that the loss in corporate earnings will be $4.7 billion. Both firms give partial blame to currency strength, among other things like slumping TV sales. Technology stocks that have a hot product don’t blame currency moves since this product drives demand. What these firms are really saying is that they don’t have any products that drive consumers to buy their products.
The truth is that there are other firms creating better products that consumers want, such as Apple and Samsung Group of South Korea. I don’t want to hear from the technology stocks I invest in about a two-percent move in the currency. I want to hear that consumers have bought so many goods that they’re sold out. Speaking of consumers, a bet on Japanese technology stocks is also a bet on the Japanese economy. That economy has been essentially dead money for decades. With the huge demographic problem the country is about to encounter as its population rapidly ages, I don’t see the domestic Japanese consumer picking up the slack in buying new tech toys.
This is a sign of the times, as there’s news that the Taiwanese firm Foxconn Technology, which makes the “iPad” and “iPhone” for Apple in China, is buying a piece of Sharp. Who would’ve thought that essentially a Chinese firm is injecting cash into a Japanese electronic company to keep it going? The investment will be an attempt to streamline Sharp’s production and Foxconn will get access to leading-edge LCD technology. I give credit to both firms for at least thinking outside the box and trying something new; trying to innovate in some way,
Investing in technology stocks can be tricky and especially dangerous if the firms have negative corporate earnings. Corporate earnings are driven by innovation and the creation of new products that drive consumers to the stores and get them to buy. Technology stocks should not be viewed as a utility or railway, building your line and sitting back watching the cash build up slowly over time. There are numerous technology stocks all over the world looking to grow their corporate earnings and, unless management runs a lean, efficient firm that is flexible and innovative, it will be eaten for lunch with the other slower firms.