2015 – Themes and Forecast

2014 2015 imageWith 2014 in the books it is time to take a look at 2015 and see if we can match or exceed last year’s results. Let’s start with the M&A picture for 2015, which should continue to be strong as long as interest rates stay low. The tricky part now is that the valuations have continued to rise in this cycle and there are fewer undervalued names from which to choose so companies likely to be acquired but trading near their highs such as CoreSite and Inphi are not listed.

To further complicate things we have the fragile world economy, oil dropping 50%+ in a few months which impacts more than most people think and then add in copper prices at 5 year lows and it smells like deflation. With that in mind, we could be in for a very tough year. The M&A picks for 2015 include a few very solid companies as well as a couple of much more speculative turnarounds.

Aviat Networks – AVNW – Speculative niche wireless player and small market cap could make them an interesting play. Turnaround appears to be happening so it makes them much more interesting.

Lumos Networks – LMOS – Lumos has been unloved for some years now but is sitting on some great assets and appears to have a very motivated management team. The company can do fine as a standalone but with all of the fiber consolidation going on it seems like they would be a great fit for a number of larger providers. Like this one a lot especially on any pullbacks.

Nokia – NOK – Turnaround underway and a number of their competitors look like they may have topped out. I also like their investment and research around haptic technologies. While it would have been much cheaper to buy them two years ago it is possible a big player will still look to merge or acquire them.

Maxwell Technologies – MXWL – Growth has stalled but the market for ultracapacitors appears to still have major growth prospects. Could be a great tuck-in for someone.

Nuance Communications – NUAN – Repeat from last year but the story stays the same. Move to recurring revenue should have been largely digested. Tremendous underperformance with the CEO on the hot seat. The pressure will be even greater on the company to get it together or get the company sold.

RadiSys – RSYS – Beaten down but appears to be turning the corner. Small market cap could make this easy to digest for a number of players.

Twitter – TWTR – Talk about a company not living up to its potential. Management is basically loathed by almost everyone. Still someone ought to be able to better leverage Twitter. Maybe this year someone will. At a minimum how about a new management team?

Now onto the forecast for trends, technologies and products.

1 – Shadow IT – specifically the consumption of cloud services without any oversight – continues to grow putting many companies at risk – will put heat on the C-Suite and IT to do something constructive about the issue.

2 – AR/VR Hype turns to Reality – Augmented and Virtual Reality have yet to do much for the masses. Though I am down on Google Glass I am very excited about this space. With Oculus being bought for $2Billion, Facebook definitely thinks the space is worth having a seat at the table. Low cost, high bang-for-your-buck products such as MergeVR could entertain the masses – your kid could be asking you to buy one of these in the near future. Higher cost products from Samsung and Oculus will help provide the marketing dollars to get this category noticed, but it is still way too early to pick a winner. Question is who can deliver in mass with a killer app in 2015?

3 – Security Issues – Internet of Things will have a host of new issues to deal with, as hackers look to exploit some of the early roll-outs. Wearables will become the next frontier for BYOD that a number of vertical industries will have to grapple with in order to leverage staff productivity. Yet another area of data privacy and security issues to deal with.

4 – Mobility continues to push cloud adoption – Companies already have incorporated push mobile devices in mass, but what type of ROI are they getting? Can they prove it? With newly designed cloud applications available, recognizing the benefits of mobility and quantifying them is becoming much easier.

5 – Xiaomi – Haven’t heard of them yet? You will as they have a huge war chest to try and invade the West. Look for them to try and exert their muscle on the mobility front as they are skilled copyists just like Samsung a couple of years ago. Sound far-fetched? Consider just 4 years ago this company wasn’t even on the map and now they are #1 in China. Here is the crazy part – they run Android but have made their phone look and behave more like an iPhone than Samsung has ever come close to doing.

6 – Skill shortage continues – The world economies will likely continue to face a number of issues keeping the labor market soft but key skills are in high demand. Just try hiring a Senior Big Data Analyst or a Chief Marketing Technologist. Many other highly skilled positions will continue to be in high demand with many slots going unfilled for more than 12 months.

7- Samsung Out of Steam – Samsung helped lead the Android revolution as they have been great at copying features from everyone else and delivering a quality product. Given that they lost market share this year they will need to come up with something new. Can they finally innovate? I am doubtful and feel they have likely hit a wall. This is part of the reason I think Nokia and others have a chance to rebound this year.

8- Wearables – 2015 appears so far to be more of the same. Lots of products coming out including quite a bit of cool technology. Problem is that many of these lead to gadget fatigue. It is still really hard to leverage all of the data. Many products miss key features and to get everything you want, you would have to wear 10 products at once. Even then the overall benefits are minimal. Until someone really figures this out we won’t be able to see how disruptive this category could really be. Could Apple have the answer?

9 – Startups – Look for a couple of things this year. Money should flow into a range of security related companies, as well-known breaches continue to make headlines throughout the year. Also, look for more specialization around verticals. Many companies will be created to attack vertical industries and continue to disrupt them. Previously, potential customers for these products were stuck developing their own code or having to purchase a major vendor’s product before spending millions to customize it to their needs. This will keep many of the big players on their toes and potentially looking for acquisition targets.

10 – Apple – You know I can’t leave this company alone. OK here is it. Apple Watch is a hard sell. So far I have seen no compelling applications to make me want to buy one – at least not yet. Factor in the faithful and they will probably still sell 7-10m of them in 2015. Question is can this product get legs and really redefine a category? Will this product release define the post-Jobs era? For now prepare for disappointment. On to other things – how about an overhaul of the Mac Air and finally a new Apple TV. The watch better not be the only new thing Apple is banking on to start building momentum beyond 2015. Only caveat – show me a killer app and I might change my mind.

I hope you enjoyed this year’s forecast. What did I miss? What do you see happening big in 2015?

Disclosure – Position in LMOS and NUAN