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Published: December 22, 2009
Slowly but surely businesses and consumers
- while still extremely cautious - are seeing their own
turnarounds. To aid them with their own recoveries, necessary
technology that has emerged in the last two years will grab more
mindshare as well as market share.
These necessary technologies will result in the deferred
purchase waiting period seen last year coming to an end in 2010,
giving a boost to three key technology businesses, including:
- Semiconductors: The industry's leading indicator
is already making a comeback, and is poised for growth on
the backs of almost every other business in the industry.
One company in particular could see huge gains in the
burgeoning smartphone market, and chances are you haven't
heard of it.
- Mobile Devices: Taking computing on the road - be
it in the form of a smartphone, netbook or tablet - will
become more commonplace. The ripple effect from this will
present a wide range of investment opportunities - from
carriers to advertisers to the companies that make the
phones.
- Software and hardware: " Do more with less,"
already an oft-heard phrase in the jobless recovery, will
continue to be heard. But new software and hardware doesn't
require an annual salary and benefits, so expect this
category to finally bounce back.
The Future of Tech Is in the Chips
In an analysis earlier this year, Money Morning said that
semiconductor manufacturers are not only leading indicators for
the tech industry, but the U.S. economy as well. Indeed, should
giants like Intel Corp. (Nasdaq: INTC) and Samsung
Electronics Co. Ltd. foresee a rising demand in the products
that use their chips, production ramps up.
The ubiquitous nature of semiconductors puts the industry in a
prime position to benefit from a boost in sales in many product
categories, including computers and servers, automobiles and
appliances.
One of the products that will see the highest gains in 2010 is
the smartphone, and British chip designer ARM Holdings PLC (Nasdaq:
ARMH) stands to reap the biggest rewards from the ongoing
smartphone revolution.
ARM's sales in 2008 were just $432.8 million compared to Intel's
$37.5 billion. So why is Intel setting its sights squarely on
what appears to be a peasant in the semiconductor industry?
Ninety percent of microchips in cell phones - including central
processors and Wi-Fi chips - are designed by ARM, then licensed
to manufacturers such as Qualcomm Inc. (Nasdaq: QCOM) and
Texas Instruments Inc. (NYSE: TXN).
"We remain committed to bringing Intel architecture and all of
its benefits to the handheld space," Intel spokesman Bill Calder
told Bloomberg News . "It's a tens of billions of dollars
opportunity and we're not backing off, nor are we ceding ground
because we don't have a leadership position."
As smartphones become better able to perform the tasks once
limited only to PCs - browsing the Internet, making spreadsheets
and other documents - companies like ARM that design the chips
that power them could be among the industry's superstars.
"They're very invisible," Global Equities Research LLC analyst
Trip Chowdhry told MarketWatch.com in an interview. "You don't
see devices saying 'ARM Inside,' or 'Powered by ARM.' I don't
think they have the mass consumer awareness like Intel."
Intel once had a division that licensed ARM technology, but sold
it in 2006 to Marvell Technology Group Ltd. (Nasdaq: MRVL)
after failing to win enough orders from phone makers, according
to Bloomberg .
Still, the future for manufacturers like Intel that make chips
for PCs and servers looks bright in 2010 as consumers and
businesses refresh their hardware. And if Intel can't beat ARM
at its own game, it could easily buy the Cambridge-based chip
designer, which has a market cap of $3.5 billion.
Analysts expect Intel's annual sales to have fallen by 7.7% by
the time the ball drops in Times Square, but recover nicely in
2010 with an 11.3% gain. The revenue will be complemented by a
healthy earnings per share (EPS) that's expected to more than
double, going from an estimated 72 cents this year to $1.46 in
the new year.
Multi-faceted Mobile Devices Take Over
Relatively new technology like smartphones are generally slow to
gain adoption, but the opening of Apple Inc.'s (Nasdaq: AAPL)
App Store in 2007 was the catalyst that had the greatest effect
on smartphone sales. Instead of just a phone with a few widgets
like a Web browser and a music player, phones became remote
controls, compasses, newspapers and cookbooks to name a few.
The iPhone made smartphones necessary technology - not because
those functions couldn't be found elsewhere, but because they
increase efficiency. This perception made a growing number of
people overlook the cost of owning an iPhone and helped Apple
buck the recession.
Smartphones will continue to be the darlings of mobile products
in 2010, and prompt single-use devices such as Apple's iPod
Classic and even Amazon.com Inc.'s (Nasdaq: AMZN) Kindle
e-reader device to fade away into tech history.
In fact, the deterioration of iPod sales is already happening,
with device shipments down 8% in Apple's fiscal fourth quarter
ended Sept. 26. And while Amazon doesn't give out Kindle's sales
numbers, converging devices such as smartphones and Apple's
oft-rumored tablet will make Kindle as a device obsolete sooner
than later.
Of course, Amazon knows this and Kindle as a platform will
continue in the form of applications on the PC, Apple's iPhone
and inevitably, Research in Motion Ltd.'s (Nasdaq: RIMM)
BlackBerry phones and Google Inc.'s (Nasdaq: GOOG)
Android operating system - found on numerous smartphones.
"E-readers are a transitional technology," Forrester Research
Inc. analyst Sarah Rotman Epps told Time magazine. Despite their
smaller screens, more people are currently reading e-books
through applications on their smartphones than dedicated
devices.
"We want you to read your Kindle books on laptops and
smartphones, anything with an installed base," Amazon Chairman,
President and Chief Executive Officer Jeff Bezos told Reuters.
More than 200 million smartphones are expected to ship in 2010,
fueled by falling price points that go below $150, market
research firm International Data Corp. said in a report. Any
margin pressure on phone manufacturers should be offset by
better volume sales.
The usual suspects will be among the leaders in smartphone
sales, such as Apple, RIM and Motorola Inc. (NYSE: MOT).
However, Nokia Corp. (NYSE: NOK) will continue to find
the going rough in 2010 as it continues to lose market share,
which fell from 42.3% to 39.3% in the third quarter according to
Gartner Inc.
A wild card in this arena will be Google, which already has its
Android operating system (OS) in a growing number of handsets.
Reports this week surfaced that Google is working with Taiwan's
HTC Corp. to market and sell a self-branded phone called Nexus
One.
It's unclear what Nexus One would add to Google's bottom line
that Android doesn't already - namely products and services that
act as a funnel to Google's advertising juggernaut. Android is
an open-source OS, which enables device makers to customize it
as they see fit - for example, guiding users that want to buy
MP3s to Amazon's online music store instead of Napster Inc.'s.
While smartphones represent the future, the proliferation of
more mobile-friendly Web sites will accelerate advertising on
all mobile phones equipped with a browser, which bodes well for
the likes of Google, Microsoft Corp. (Nasdaq: MSFT) and
Yahoo Inc. (Nasdaq: YHOO). Mobile advertising will have
grown by 74% to $913.5 million by the time 2009 ends, and
explode to more than $13 billion by 2013, Gartner says.
More than 1 billion mobile devices - be it a phone or iPod Touch
- will access the Internet in the New Year, IDC says. That's
catching up to the 1.3 billion users that use a PC to go online,
and the rate of growth for mobile users is 2.5 times the rate of
PC users.
A more "hyperlocal" approach will be taken to advertising on
mobile phones in 2010. While Google revolutionized the idea of
targeted ads years ago - either via search or using the content
on a given Web page to show context-relevant ads - the search
giant and its competitors have largely stuck to national or
online-only advertisers.
Most mobile devices can identify where a user is, either through
GPS or an IP address. So if a user is in an unfamiliar city and
has an appetite for Italian food, a text or voice search through
directory applications or a mobile Web site will yield Italian
restaurants within a few miles. Similar to the Yellow Pages,
businesses that pay more to providers such as Google or
Microsoft will have their results more prominently featured. The
ancillary effect of this will likely mean more jobs, as well as
a pickup in mergers and acquisitions (M&A) in this arena.
"We are absolutely planning to increase our headcount and we're
aggressively trying to find the best talent as we did
historically," Google Chairman and Chief Executive Officer Eric
Schmidt told Bloomberg in November. "We are back in business -
hiring people."
Even though Google would likely be successful by bringing its
AdSense program to mobile phones, it chose to buy the
established AdMob Inc., which was founded in 2006. AdMob
specializes in image-based mobile display ads within apps,
giving Google - which only had text-based ads being shown in
apps - a head start on competitors like Yahoo and Microsoft.
Microsoft has a clear opportunity for in-app advertising. Its
counter to Apple's App Store and Google's Android Market,
Windows Marketplace for Mobile, just launched in October.
Like it did with traditional Web search, the Redmond, Wash.
software giant once again finds itself looking up at Google. But
that's not to say it isn't trying: Earlier this year it formed a
partnership with Quattro Wireless.
In this fast-paced game of staking a market share claim, Quattro
could find itself the target of an acquisition by either
Microsoft or Yahoo.
Windows 7 to Spur Software, Hardware Sales
Last fall's release of Windows 7 was received much better than
its predecessor Windows Vista, and will make significant headway
in gaining market share in 2010. An IDC report says Windows 7
will run on the majority of PCs by the end of 2011, roughly 10
years after the current market-share champ Windows XP was
released.
Next to Windows XP, Windows 7 represents the next evolution of
the PC that Vista failed to deliver: Make it easier and faster
for users. And in an economy where productivity gains greater
importance, an OS like Windows 7 becomes a necessary technology.
PC sales will grow 7% in the New Year, while sales of packaged
software will grow 3%, IDC says. Gartner paints an even more
optimistic picture, with PC sales growing 12.6% in 2010.
Before businesses will take the baton of implementing Windows 7,
it will be consumers that spur PC sales pre-loaded with the OS,
and it started before Windows 7 was even released: Third-quarter
PC sales gained 0.5% versus the same period in the previous
year, according to Gartner. That soundly beat the market
research firm's own estimate of a 5.6% decline.
Recent gains in consumer spending have come largely from the "
frugality fatigue" of the employed, says Money Morning
Contributing Writer Jon D. Markman. "Retail sales are up
materially, particularly at car dealerships but also at
electronics stores, building materials vendors, sporting goods
stores and bars," he wrote in a recent column.
The sweep of Windows 7's rising penetration will be wide and
result in a larger "ecosystem" that will produce $18.52 for
every dollar of revenue the company generates from the OS, IDC
says. By the end of 2010, this ecosystem will have reaped
Microsoft more than $320 billion in related products and
services.
For Microsoft's upcoming Office 2010, the value proposition will
be tougher for the company. Much of the next generation of
Office will revolve around cloud computing, but the slam-dunk
that Microsoft is accustomed to in this arena will be challenged
by Google Apps, which is being positioned as a much cheaper
alternative.
Google revealed on Monday that the City of Los Angeles will move
all 34,000 of its employees to its suite, joining Washington and
Orlando. Los Angeles Chief Technology Officer Randi Levin says
the move to Google could produce a return on investment (ROI) of
roughly $20 million over the course of the five-year contract.
But don't expect Google to even come close to knocking Microsoft
off its lofty perch in 2010. While eyebrows at Microsoft's
campus will be raised at Google's contract wins with big cities,
Microsoft has a firm grasp on businesses.
"Microsoft is entrenched," Scott Kessler, an equity analyst at
Standard & Poor's told Bloomberg. "Microsoft isn't going to lose
market share to Google anytime soon. It's going to take some
time and Google is fully aware of that."
-- Bob Blandeburgo
Associate Editor
Money Morning |
