2 Computer Hardware Stocks To Avoid

black and silver laptop computer

Source: Unsplash 

In our increasingly connected and tech-savvy society, computer hardware has become a household essential worldwide. Nevertheless, the global computer hardware manufacturing market declined 4% to $897.6 billion in 2020, due to restrictive COVID-19 containment measures involving the closure of commercial activities, and supply chain and consumer spending disruptions caused by the pandemic. In addition to this, the increasing adoption of new technologies, such as tablets and smartphones, has been contributing to slowing demand for computer hardware.

The computer hardware sector is one of the largest generators of electronic waste that is hazardous and expensive to treat in an environment-friendly manner. This has led to rising government regulations regarding the disposal and recycling of waste, which is hindering the industry’s growth.

Against this backdrop, it is advisable to avoid Canaan Inc. (CAN - Get Rating) and Logitech International S.A. (LOGI - Get Rating). We think they are not well-positioned to survive industry challenges or grow in the near term.

Canaan Inc. (CAN - Get Rating)

Based in China, CAN provides high-performance computing solutions through its proprietary computing ASICs (Application Specific Integrated Circuit). The company is currently focused on the research and development of advanced technology, including artificial intelligence (AI) chips, AI algorithms, AI architectures, system on a chip (SoC) integration, and chip integration.

In the third quarter of 2020, CAN implemented its K210 AI chips in hardware sensors to better ensure the proper execution of social distancing practices in response to the outbreak of COVID-19. During the same period, the company launched its A1246 product series, which continues to lead the industry with its energy efficiency computing power and competitive unit cost.

Despite these developments, CAN’s third quarter (ended September 30) results are far from impressive. The company’s revenues have decreased 75.7% year-over-year to $23.53 million. Its net income has decreased 191.3% from its year-ago value to negative $12.73 million, resulting in a loss per share of $0.54, up 184.4% year-over-year. The stock has gained 211.8% year-to-date and is currently trading at 22.3x its trailing-12-month sales, 401.2% higher than the industry average  4.44x.

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