OBSOLESCENCE RISK

The risk that a process, product or technology used or produced by a company for profit will become obsolete, and is no longer competitive in the marketplace. Obsolescence risk is most significant for technology-based companies or companies with offerings that are based on technological advantages. This can also extend to the risk that certain costs laid out for obsolete products or services cannot be recouped. These risks can significantly alter a company's growth prospects and earning potential.

The stock market "graveyards" are littered with dead companies whose products or technology was rendered obsolete. For example, these were the technology companies listed on Morgan Stanley's "recommended list" in 1982:

-Control Data
-Digital Equipment
-NCR
-Storage Technology

Due to obsolescence, none of these companies exists today! Obsolescence risk is a factor for all companies to some degree, and is a necessary side-effect of having a thriving and innovative economy.