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7 companies on the ropes in 2012 Empty
PostSubject: 7 companies on the ropes in 2012   7 companies on the ropes in 2012 EmptyTue Jan 03, 2012 2:30 am

7 companies on the ropes in 2012

7 companies on the ropes in 2012 Ca6c132a275d191a9fa2955

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A sputtering economy makes the coming year that much tougher for companies struggling with changing technologies, fickle consumers and their own mistakes. Consider the plights of Sears, Barnes & Noble and these others.

By Michael Brush, MSN Money

No wiggle room for the weak
The coming year promises to be another tough one for business. The European debt crisis is far from resolved; in the U.S, the economy continues to sputter, and both consumers and the government face serious debt problems.

Markets will be particularly unforgiving to companies facing additional challenges in such a tough environment.
2012 promises to be a year when only the strongest thrive and those on the ropes find it hard to survive.

A common theme among these companies on the ropes -- facing sharp declines in stock prices, takeover or bankruptcy -- is that changes in technology or consumer tastes have hit them with problems they have yet to solve. Take Eastman Kodak (EK); once the blue-chip name in photography, it has yet to cope with the advent of the digital camera. Or Research In Motion (RIMM), which used to rule the smartphone world but has been lapped by the iPhone and Android.

Debt is another common problem among companies in trouble in 2012. And there are simpler problems right out of Management 101. Sears (SHLD) suffers from sheer neglect, which means, like Kodak, it's a storied name that could go away sooner rather than later. In fact, in late December its parent company announced plans to close at least 100 Sears and Kmart stores to raise cash.

Research In Motion
The BlackBerry from Research In Motion (RIMM) came on so strong in 2006-07 that "Berry" was synonymous with "smartphone" for a while. Now the BlackBerry is getting trounced and in 2012, things will only get worse.

Research In Motion's share of the U.S. smartphone market fell to just 9% in the previous quarter, from a commanding 60% in 2006 before the popular iPhone from Apple (AAPL) and Android phones were available, says Canalys, a market research company.

Research In Motion stands a fighting chance in 2012 if it can re-create its old magic with a new model. Alas, the company just shocked investors by announcing the delay of its BlackBerry 10 for almost a year, to the end of 2012. A new Playbook tablet computer due out in February may not help much. The last Playbook was a flop, and the new one goes up against tough competition from Apple's iPad and the Kindle Fire from (AMZN).

In the company's most recent conference call, co-CEO Michael Lazaridis said it's still "early days" for the BlackBerry 7 launched last August, and ongoing marketing should drive sales of this phone in 2012. Co-CEO James Balsillie said RIM continues to be a leading smartphone company, with nearly 75 million BlackBerry subscribers in more than 175 countries.

RIM also points to strength in BlackBerry sales in emerging markets as a possible saving grace in the coming year. But that's no substitute for the loss of lucrative U.S. corporate customers. In 2012, "all objections in corporate America to the iPhone and the iPad go away, and that's the end for Research In Motion," says Michael Shulman, the editor of Short-Side Trader, an investment newsletter. "They're done."

So what's ahead? Research In Motion stock, which recently traded for $13.50 off a 52-week high of about $70, won't just disappear. ThinkEquity's Mark McKechnie believes the company has $9.50 a share worth of intellectual property and patents. And it has $2.75 a share in cash. These assets make RIM a potential takeover target in 2012, says Andrew Corn of E5A Funds.

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Barnes & Noble
Cavernous Barnes & Noble (BKS) stores seem a lot emptier than they were a few years ago. Where is everyone? They're shopping online, and probably at (AMZN). In the previous quarter, Amazon's sales grew 44%, compared with sales declines at Barnes & Noble.
Amazon has posted annualized sales growth of 32% over the past three years, compared with a mere 7% at Barnes & Noble.

And next year, if readers are at home curled up with an e-book instead of perusing the aisles at Barnes & Noble, it's more likely that they’ll be reading it on a Kindle Fire from Amazon than on a Nook Tablet from Barnes & Noble. After all, the Kindle Fire is $50 cheaper at $199. (There are cheaper Nooks, but that's the comparable one.)

Amazon also has a much richer collection of digital content, like books and movies, behind its e-reader. This will be another serious problem for the nation's last brick-and-mortar bookselling giant.

It's too early to close the book on Barnes & Noble. The chain is renegotiating leases to contain costs. It's selling more toys. And it has a strong college textbook business. Plus, apologists like to argue that Barnes & Noble has more breathing room now that Borders is gone.

But this isn't entirely true. Barnes & Noble also faces tough competition in high-volume best-sellers from Wal-Mart Stores (WMT), Target (TGT) and Costco (COST). As for that college textbook business, the margins are low, and they'll get even lower if Amazon moves in.

One saving grace is that e-books won't entirely replace the old-fashioned kind. But e-books will be a major 2012 trend, and the odds don't favor Barnes & Noble. "Amazon is in the driver's seat, and it will take majority share," says Scott Stevens of Strata Capital Management, in Beverly Hills, Calif.

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Rite Aid
Rite Aid (RAD) is the third-largest drugstore chain in the U.S., with a big presence in California, New York and Pennsylvania. But despite this promising positioning, the retailer may need a magic pill to survive 2012. It faces problems on several fronts, including a mountain of debt that threatens to bring the house down.
First off, even though Rite Aid is so big, with about 4,700 stores in 31 states, it lacks the size and clout needed to take on an array of tough competitors.

In addition to giants like CVS Caremark (CVS) and Walgreen (WAG), Rite Aid also has to go up against mail-order pharmacies with lower costs like Express Scripts (ESRX), as well as the giant supermarket chains the have pharmacies and big-box retailers like Wal-Mart Stores (WMT), which now offers $4 generic prescriptions.

The company has reported losses for the past six years. And while sales did advance slightly in 2011, Rite Aid still has miles to go to catch up. Despite the economic rebound since the credit meltdown, 2010 sales were 3.8% below 2009 sales.

Meanwhile there's that $6 billion in debt, much of which was taken on to fund the ill-timed purchase of Brooks and Eckerd stores in 2007. "I don't really see a lot of pluses for them at all," says Jeff Reeves, the editor of InvestorPlace. "Something has to give."

The company recently refinanced part of its debt, which buys some time. So 2012 may not be the year Rite Aid fills its final prescription. But 2012 may see it move closer to that fate.

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Eastman Kodak
An iconic name in photography for decades, Eastman Kodak (EK) is now just a blurry image of its former self. There's a great irony here. Kodak's been laid low by the digital camera -- after planting the seeds of its own destruction by inventing the digital camera in 1975.
Competitors like Canon and Nikon did a much better job of making money off it. The upshot has been years of dwindling sales and nagging losses at Kodak. Its own digital camera efforts, which once looked promising, have flopped.

Kodak sales fell once again in 2011's third quarter -- by 5% to $1.46 billion. And the company reported $222 million in losses, 83 cents per share. Underscoring concerns that Kodak might go into bankruptcy, cash levels were cut nearly in half, to $862 million from $1.62 billion the year before. For the first nine months of 2011, the cash bleed in its core businesses was horrendous, doubling to $1 billion.

CEO Antonio Perez, who joined Kodak in 2003 after many years at Hewlett-Packard (HPQ), has valiantly led the company into new lines of business, mainly inkjet printers, with some success. Printer division sales grew a nice 44% last quarter. Kodak says it has sold enough printers so that sales of replacement ink cartridges, the bane of printer owners worldwide, will finally drive the printer division to profits in the fourth quarter. Sales in a new division selling plates used in packaging printing grew 89%.

Kodak maintains that cash will double to $1.4 billion by the end of the year because of strong holiday sales. And the company is hoping to stave off bankruptcy by selling off about 1,100 digital patents to raise cash. But The Wall Street Journal just reported that patent sales may be hitting a snag as potential buyers worry about purchasing them from a company so close to a bankruptcy, which could have creditors eventually suing to reclaim then. "We have received several financing proposals," says Kodak spokesman Christopher Veronda, "and we have a very active and robust bidding process for our digital imaging patent portfolios."

Back in the late 1800s, when George Eastman first put Kodak cameras in the hands of budding photography buffs, his slogan was, "You press the button, we do the rest." More than a century later, 2012 may be the year that Kodak lenders push the button and the company goes down the pipes.

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We all loved Netflix (NFLX) when it freed us from the tyranny of Blockbuster's late fees with a simple DVD-by-mail service. But the love affair is fading. As viewers turn to online streaming video, the red envelopes and DVDs seem quaint -- or worse.
Netflix, of course, offers a quality online video service. But the paradigm shift to streaming video is going to be rough on this company in 2012, for two reasons.

First, the change exposes Netflix to a lot more competitors -- from (AMZN), Apple (AAPL) and Google (GOOG), to sites like Hulu and Vudu, says James Angel, a professor of finance at Georgetown University's McDonough School of Business. Amazon Prime, for example, offers streaming video (not to mention quicker shipping on retail items) for just $79 a year, which is less than Netflix. Netflix customers, still miffed by a surprise price hike made and then rescinded during 2011, are all too happy to convert. Cable companies, meanwhile, are beefing up their video-on-demand offerings.

The other big challenge for 2012 is that the shift to streaming video will make content a lot more expensive for Netflix. With DVDs, Netfix had a great deal. It had to pay only for the discs, then rent them as often as possible without paying any extra revenue to movie studios and TV networks. Now it's payback time. Streaming means content providers can negotiate higher prices by playing competitors against each other, says Michael Corty of Morningstar. "We see a greater portion of the economic profits shifting to the content owners," he says.

Netflix says it will see plenty of growth from international expansion. But it will come at a huge cost in infrastructure, and analysts aren't convinced it will pay off. Ominously, Netflix recently ambushed investors by announcing an expected loss for all of 2012, instead of just the first half. That could foretell even worse news for Netflix in the coming year.

Sears (SHLD) has a long and proud history reaching back more than 100 years, which is extraordinary for a retailer. It boasts popular brands like Kenmore in appliances and Craftsman in tools. Your grandfather may have loved the place.

But he probably wouldn't like Sears today.
Under the auspices of Eddie Lampert, whose ESL Investments owns 45% of Sears stock, Sears invests less in its stores than any other retailer, according to Morningstar analyst Paul Swinand. As a result, "stores are visibly worn," he says.

That puts Sears at a distinct disadvantage as it competes for the business of moderate-income consumers with savvier retailers like Home Depot (HD), Wal-MartStores (WMT) and Target (TGT). This helps explain why Sears has seen four straight years of sales declines. And 2012 promises more of the same.

A Sears spokesperson responds that the retailer has been taking steps to improve stores, such as deploying iPads to help sales staff check inventory and product information; upgrading lighting, fixtures, signs and restrooms in more than 200 stores in 2010; and having senior execs review store appearance more often.

Another big negative is that Sears sells lots of stuff that requires a strong home market for robust sales, like appliances, tools and home electronics. The housing market is still weak, and it will probably remain so for much of 2012. "I view Sears as death in slow motion," says Angel.

A supposed advantage here was that Sears owns many of its stores, so it had solid real-estate value behind the business. But even this won't help in 2012, since many Sears stores are in older malls suffering from declining traffic. "Nobody wants dead anchor stores in malls anymore," says Shulman.

The stock fell to about $33 in late December on news of its plan to close 100 stores, down from a 52-week high near $95, and analysts sounded glum about its prospects. But as with Kodak, the "Sears going away" story has been written many times. It's possible takeover specialist Lampert will keep it around quite a while. The question with Sears may be: Why?

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A popular hit like the iPhone naturally carries dozens of products along in its slipstream. One company that benefits is Zagg (ZAGG), which sells protective screen covers for iPhones and other devices, called the invisibleSHIELD.
Zagg also sells specialized earbuds like ZAGGaquabuds, a water-resistant earbud, and ZAGGskins, which are protective covers that customers can customize with their own designs.

Zagg recently attracted investor attention by posting impressive 99% sales growth to $45.9 million in the third quarter, even before the iPhone 4S was released. But robust results like that attract competitors -- which offer similar products at much lower prices.

And this will be Zagg's chief problem in 2012. It's in a business with few, if any, barriers to entry, says Stevens, of Strata Capital Management, who has been short the stock, but isn't at the moment.

A Zagg representatives responds that barriers to entry are "quite high" in that it's difficult to get goods into major retail channels -- including Wal-Mart Stores (WMT), Best Buy (BBY) and Target (TGT) -- and keep them there, as Zagg has.

And Zagg's invisibleSHIELD does have a coolness factor in that it uses material originally developed to protect rotary blades on military helicopters. Plus, the company says it has a patent for "protective covering for an electronic device," for film-based covers, and it has already launched suits against competitors. But if these suits drag on in 2012, they'll offer limited protection.

At the time of publication, Michael Brush did not own shares of any company mentioned in this column. Brush is the editor of Brush Up on Stocks, an investment newsletter.

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What do you think?
Which companies or stores do you think might disappear in 2012? Tell us your thoughts on the MSN Money Facebook fan page. Then check out these other articles on MSN Money:

The year of the IPO flop
Jubak's top 10 stocks for 2012
Big business blunders then and now

Updated Dec. 28, 2011

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PostSubject: Re: 7 companies on the ropes in 2012   7 companies on the ropes in 2012 EmptyTue Jan 03, 2012 10:36 am

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