7. Dell Inc. (NASDAQ: DELL)
Dell is being hammered by the smartphone and tablet PC sectors. This is not long after its prospects were damaged by poor management decisions and the rise of Asian manufacturers, which has taken significant market share from the company. Dell was one of the companies that capitalized on the creation of the IBM PC platform. Among the others were Hewlett-Packard Co. (NYSE: HPQ), Compaq, and Gateway. International Business Machines Corp. (NYSE: IBM) exited the business when it sold its PC operations to China-based Lenovo in late 2004. After that, the PC industry went through two sets of transformations. One was consolidation: HP bought Compaq and Acer bought Gateway. The other was the emergence of large Asian PC businesses — Acer, Asus and Lenovo. All of these companies, Asian and American, face a substantial challenge today. PCs are viewed as commodities, which has put pressure on prices. Computing has moved quickly to smartphones and tablets. Dell made another substantial mistake. As its share of the global PC market has fallen, it has not aggressively followed the successful model adopted by IBM. IBM built a $100 billion business offering consulting, software, IT support, hardware and financing. It does not rely heavily on a single offering. Dell’s reliance on PC sales has continued to sting, particularly now that the PC era has given way to one dominated by smartphones.
8. Advanced Micro Devices Inc. (NYSE: AMD)
AMD’s latest quarterly report shows just how bad off the company is. Year-over-year revenue fell 10% to $1.4 billion. Non-GAAP net income fell from $70 million to $46 million. AMD was Intel Corp.’s (NASDAQ: INTC) most direct competitor five years ago, and held about 24% of the server and PC chip market in 2007. Last year, its market share fell to 19%. But that is not AMD’s single greatest problem. The company bought graphic chip maker ATI in 2006 for $5.4 billion. PC makers had begun to add more of these chips to their machines. AMD needed to keep pace with rival Intel and graphic chip maker Nvidia Corp. (NASDAQ: NVDA) The main result of the ATI transaction was that it saddled AMD with an unsustainable debt and did almost nothing to help AMD’s fortunes. AMD had revenue of $6 billion in 2007, while Intel’s was $38.3 billion. Last year, AMD’s revenue rose to only $6.6 billion, while Intel’s soared to $54 billion during the same period. AMD has had three CEOs in the last five years, as it struggled to find a strategy for growth. The company’s greatest challenge may lie ahead as much of the personal computing market moves to tablets and smartphones. The chip used in the Apple iPad was designed by Apple, and made by Samsung. The Apple iPhone 5 will probably be powered by a quad core processor made by Samsung, the same chip used in the Samsung Galaxy S III. The other primary designers of the current generation of chips are Qualcomm Inc. (NASDAQ: QCOM) and ARM Holdings PLC (NASDAQ: ARMH). AMD’s products are almost nowhere to be found in this latest generation of portable devices.
9. Bank of America Corp. (NYSE: BAC)
Most of the operations that constitute Bank of America today were created through a series of mergers and buyouts, including the acquisition of FleetBoston in 2003 and credit card giant MBNA in 2005. These and other deals were engineered by Ken Lewis, who became CEO in 2001. By 2007, he had succeeded in making Bank of America the largest bank in the US by deposits. But Lewis became overzealous as he tried to make the bank even larger. As the financial system was heading toward near-collapse, Bank of America bought crippled mortgage bank Countrywide Financial in January 2008 and deeply troubled investment bank Merrill Lynch in September of that year. Bank of America’s financial troubles multiplied so rapidly that it was forced to take much more TARP money than most other large US banks — $45 billion. Lewis’s risk-taking eventually was part of the reason the federal government pressed the bank to add outside directors who had been regulators or heads of successful banks. In June 2009, four new directors were appointed, including a former member of the Board of Governors of the Federal Reserve System and a former chairman of the Federal Deposit Insurance Corporation. Lewis was out by the end of the year, and Brian Moynihan replaced him. But Moynihan’s tenure has been even more disastrous than Lewis’s. JPMorgan Chase & Co. (NYSE: JPM) passed B of A in assets to become the largest bank in the US. Crippling losses caused B of A to announce it would cut more than 30,000 jobs. In late 2011, a $50 billion class action suit was filed against B of A based on the lack of disclosures made when it bought Merrill Lynch. Bank of America has also been the target of several mortgage fraud suits, and entered into a settlement which cost it and four other large US banks a combined $25 billion. B of A still faces legal and balance sheet problems, which may force it to raise tens of billions of dollars. This will undermine the share price. The final and most difficult challenge is its exposure to the US real estate market, which is unparalleled among its peers. This, in addition to the unhealed scars from poor management and the global financial collapse, have left Bank of America limping along
Douglas A. McIntyre