Top 10 Technology Forecast for 2016

2016 imageWith 2015 in the books it is time to take a look at trends, technologies and products in the Technology Forecast for 2016

1 – Artificial Intelligence – will be incorporated into technology products, services and software at a rapid pace. More interesting is that the old 1950’s proclamation “Robots will soon be everywhere!” will finally begin to take place in 2016. Robots are already well accepted for basic tasks but will gain popularity as people see other uses. AI will also be used behind the scenes to reduce fraud and loan delinquencies, improve support and compliance, enhance special education, help with security and link disparate but interesting research together.

2 – Drones – which till now have primarily been targeted to consumers and known as a cool Amazon side project, will get a serious dose of commercialization in 2016 upon the FAA releasing rules for commercial flights. Consumers will also benefit from the R&D as drones get smarter with more sensors along with the ability to play interesting games.

3 – 3D Printing – goes mainstream in 2016. While investors and companies have been disappointed in the growth and profitability of companies involved in this space, much innovation continues to take place. The cost of ownership has come down and the capabilities have gone up. The Aerospace, Automotive, Energy and Medical Device industries should lead the way in leveraging 3D printing. We have only begun to see the tip of the iceberg in how this technology will disrupt industry.

4 – Driverless Car – It’s not quite going to happen yet in 2016, but the strides in this space will still be impressive. There will be lots of hype but it will be a while before consumers can purchase or get a fully functional driverless car. The good news is that some of this technology is creeping in now in the form of driver assistance, with the aim of reducing accidents. The bad news is there is plenty more hype to go before a truly autonomous car hits the market for consumers to purchase at their leisure. The hype for a pilotless plane will be forthcoming.

5 – Augmented Reality/Virtual Reality (AR/VR) – VR got going in 2015 with affordable gear now available. What is missing is software that fully leverages these platforms, as opposed to ports of current popular games. I have seen some fun and cool stuff to demo but we are still in search of some games that will blow your mind. Call me a believer in the possibilities but in order for this to really explode we need to see some killer apps to avoid the current generation becoming the equivalent of 3D Television. Will it take haptic products to really make this go? AR still holds tremendous potential for business and gaming but in 2016 we will just get more hype.

6 – Age of Context – now has all of the pieces in place to fully be leveraged since it was first brought to the forefront some years ago. The question for 2016 is who will actually do it well? We have had mobile, social media, big data, sensors and location-based services for some time now. The big difference now is the ubiquity of all of these elements. In 2016 we should see someone finally overcome the issues of privacy to fully leverage this.

7 – Data Driven Design – Much like the Age of Context, 2016 marks the year that Data Driven Design benefits from all of the pieces finally coming together. Retail is a poster child for this as data now allows retailers to have a bidirectional relationship with their customers. This isn’t just about suggesting products to customers as Amazon has done for some time now. This is about changing the design of products, giving the customer a different experience, modifying support or creating something entirely new.

8 – Blockchain – is not just for Bitcoin anymore. Just look at the investments made by major financial institutions in this space. This technology is not only legitimate it is highly disruptive. Look for it to begin impacting not only banking, but healthcare, music, financial services, security and identity management just to name a few. It will be interesting to see if legitimizing Blockchain actually helps Bitcoin gain more traction as well.

9 – Smart Earphones – are coming. Think about what you could do with something that fits in the ear, provides more functionality than a FitBit, and allows you to take calls hands free while working to provide noise cancellation on a plane. This technology also has the ability to drastically impact the hearing aid market this year. Look for someone to launch these multifunction devices by late 2016.

10 – Apple – has greatly disappointed a number of fanboys over the past several years with limited releases and few things to get overly excited about. That is now being reflected in the stock chart, as the company is behind on several fronts. This year’s announcements were disappointing, as was the Apple Watch product launch. Even the laptop line is confusing – I still don’t know what they are doing with the Mac Air line in light of the new Mac Book. After dropping the ball on several fronts Apple is now extremely dependent on the iPhone. In 2016 I expect Apple to straighten out their confusing laptop line, deliver a second generation watch, launch iPhone 7 with major advancements over the 6, and finally start delivering on some of their home automation toolkits. Apple still builds the best and most reliable hardware but they simply have to be more innovative 2016 or risk losing the halo that surrounds many of their products. I am banking on some sort of surprise from these guys this year.

What do you see happening in 2016 that I might have missed?

 

 

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

Report Card – 2014 Themes and Forecast

report-cards-education1

Time to take a look back at the 2014 Forecast and Predictions and see how they turned out. Overall 2014 had a number of hits along with some disappointments. Let’s start with a review of the companies that seemed like they could be M&A Targets along with one to sell and see how they did.

 

2014 Picks with Performance Data
Acquired Closing Price 1/6/2014 Last Trade 12/31/2014 Percentage of Change
Blackberry BBRY No 8.01 10.98 37.08%
Fortinet FTNT No 19.24 30.66 59.36%
Game Stop* GME No 48.17 33.8 29.83%
Multi-Fineline MFLX No 13.97 11.23 -19.61%
Nuance NUAN No 15.05 14.27 -5.18%
Rackspace RAX No 36.73 46.81 27.44%
Average Gain 21.49%
*- Recommended selling or could have gone short

Highlights of 2014 – On the Money

Amazon finally getting enough criticism to cause some customers and analysts concern around a number of their strategies.

Avoiding social media stocks such as Yelp, Twitter, LinkedIn, Facebook along with Amazon which had negative comments in the forecast would have served you well as a number of them were down sharply for the year and the basket would have left you with a loss even with an amazing performance from Facebook.

-The overall portfolio did well against market averages and easily beat them with a 21.49% gain for the year.

Microsoft was a tough call as they are still struggling with handset sales but they seem to have found a winner with the Surface.

IoT was on target with a ton of interest and devices being introduced. A number of vendors are jumping in to figure out how to pull all of this data together and make it more useful.

Google Glass was welcomed to a lukewarm reception. No “killer app” and high price were just a couple of reasons why the units are not flying off shelves.

Outsourcers and Integrators Disappearing seems to be gaining momentum as a wide range of businesses were either bought, merged or closed up shop in 2014. Many researchers are hot on this trend now.

Lowlights of 2014 – Off the Mark though perhaps some just delayed

None of the M&A stocks were acquired though there was some notable interest around at least one of the candidates.

Digital wallet while getting some traction still isn’t widely accepted enough to ditch carrying credit cards and alternate payment methods. Maybe next year especially with Apple’s visibility helping.

3D Printing crimes and legal issues were not major issues in 2014

Apple did not ship a TV or a wearable though one was announced this year.

What could happen in 2015? Check out my next post coming out shortly and let me know if you agree or think I am missing something?

REVIEW OF 2013 THEMES & FORECAST

For a number of years now, I’ve tried to make some educated, annual guesstimates on what will happen in the tech world. At the end of the year, I look back to see how I fared with my predictions. This has made for good conversation with a number of people I’ve encountered, so I look forward to your feedback this year, too.

With 2013 nearly a wrap, it’s time to revisit last years’ predictions and surprises. Let’s start with a review of stocks that were mentioned as M&A targets, plus Facebook, which I forecasted to rebound.

2013 M&A Picks with Performance Data
Closing Price Last Trade or Price Percentage of
Acquired 1/8/2013 12/24/2013 Change
Adtran ADTN No 20.72 26.38 27.32%
Brocade BRCD No 5.36 8.68 61.94%
Dolby Labs DLB No 29.67 38.57 30.00%
Facebook FB No 29.06 57.96 99.45%
Fortinet FTNT No 19.09 18.9 -1.00%
Groupon GRPN No 5.2 11.84 127.69%
NetApp NTAP No 32.5 40.38 24.25%
Palo Alto PANW No 47.63 56.85 19.36%
RIM BBRY No 11.91 7.73 -35.10%
Travel Zoo TZOO No 19.68 21.82 10.87%
Yahoo YHOO No 19.66 40.85 107.78%
Average Gain 59.07%

Highlights of 2013 – On the Money

  • Though none of this portfolio of particular stocks were actually acquired in 2013, they hummed along, crushing the market averages with a greater than 59% annualized return for this chosen portfolio of stocks.
  • Facebook mounted a huge comeback and gained back the faith of many of those whom it had disappointed in 2012.
  • Marissa Mayer is on a mission and did not disappoint investors as she made huge strides at Yahoo in 2013. Can she keep it up?
  • Smartphone cameras improved greatly and were key features in many new models.
  • The Blackberry phone was not a game changer and BBRY quickly popped back up as an M&A target.
  • Cloud War is in full progress as Amazon continues to cut prices and Wall Street seems to buy the strategy damaging many competitors in the process.
  • Laws—or lack thereof—slowing cloud adoption were commonplace. Imagine the even more impressive growth the cloud would have if businesses weren’t scared of compliance, case law and spying, for example.
  • Microsoft released their new XBOX and made some positive steps on the mobile front.
  • Crowdsourcing is now seen in tons of applications and has definitely hit the mainstream.

Lowlights of 2013 – Early Though Still Possible

  • Blackberry still didn’t get a deal done. I really thought they would seal a deal in 2013 in order to escape the drama that has so publicly haunted the company, and so they can focus on product development (even if it means killing their device business).
  • Apple has blown my mind by not releasing anything worth highlighting except the iPad Air and an offering of a free OS upgrade. I really thought Apple would do something noteworthy on the mobile device or television front. It seems Samsung read Job’s comments about a smart TV and took the lead on making televisions easier to control. Tim Cook keeps teasing us that there are exciting items in the funnel and that 2014 will be a big year. Let’s see if he is right.
  • No M&A – Not a single company in the list was taken over. The value of several of these companies was evidenced by their shares rebounding greatly, but I still believe many of them cannot continue to stand alone much longer. At this point, it may take another downturn or a technological advance to get the valuations compelling enough for a deal to happen.

What could happen in 2014? Check out my upcoming blog “2014 Themes and Forecast” and let me know where we agree or disagree.

Why Apple and Microsoft Need Each other – at Least for Now

Most of us witnessed Apple’s invasion of corporate America. A wide range of executives, power users and recent graduates have hit the work scene with their own iPhone, iPad and Macbooks or required that their companies purchase some of these items. Several well-known companies have rolled out thousands of iPads to entire divisions within their companies. Liquid Networx has observed this first hand, prompting us to reevaluate our policies and support procedures.

Let me share my own personal experience. An early adopter of the iPad and iPhone, I decided to experiment with a Mac Air last year—the hardware was just too tempting to pass up. A number of colleagues. and occasionally even customers, were asking if you could really run off a Mac for business without using a Windows Virtual Machine on the device. Excellent question. After living off of the Mac Air for about 18 months while using a range of other devices and platforms, I have advice for both Microsoft which is facing the brunt of my frustration and for Apple which is close behind.

The Now

I’ll start with the good, the bad and the ugly with Microsoft. On the pro side, from my Mac Air I’ve had zero problems sharing files with PC users utilizing recent versions of MS Office. Microsoft has made great strides in ensuring the file formats normally work without a hitch. Linking into SharePoint also works with relative ease. The only major “gotcha” (which isn’t Microsoft’s fault) is that many of the add-ons such as document management products and file comparison utilities still do not run natively on the Mac.

Now for the bad. The Mac Air menus inside Office are inconvenient and clumsy as they are non-standard with the Windows counterpart. The controls don’t match what users are accustomed to on Windows, nor do they emulate most other Mac software. Therefore you waste too much time searching for features with which you’re typically familiar. In some cases, they’re simply missing altogether.

That bring us to the ugly. The Outlook module inside Office 2011 shouldn’t be called Outlook, though it is an improvement over Entourage. When purchasing a product called Office 2011, you might imagine that the software bundled inside would be an improvement over Office 2010, regardless of the platform designation. Unfortunately, I can assure you this is not the case. Outlook 2011 looks okay at first glance, but there are a number of areas Microsoft must to address. Where to begin? For starters, the “offline” mode requires some attention as the software behaves sluggishly in this mode. Also, I’m a bit nauseated by the spinning rainbow pinwheel each time I open up contacts. When switching to this view, there is invariably a 20-30 second delay when you can do absolutely nothing but wait until the pinwheel stops its rotations and finally returns control to the user.

Cloud to the Rescue? Not quite yet

Cloud services represent another area where some of the ugliness assimilating Apple and Microsoft can be abridged. Both companies have made integration with outside cloud services far more difficult than they should be. For instance, Windows users can sync Google contacts and calendars with Outlook, but Mac users cannot. Apple is also guilty of delaying availability of iCloud to PC users. Assuming you have an Apple device, iCloud is great. But as far as I can tell, it’s worthless with any other OS or hardware. I think Apple is really missing the mark here as they made huge inroads into Windows Land when they made iTunes available for the platform. Now Apple is at a critical juncture again. I’m ready to see the company make iCloud fully available for Windows and other platforms, and perhaps have the rest of their cloud strategy become as pervasive as iTunes. Forget the enterprise the current cloud offering doesn’t even work well for consumers or the SMB.

Impact not just to Apple

With the Windows 8 launch being tepid at best (both across the desktop OS and mobile platforms), now is the time that Microsoft needs to solidify the Office franchise as the platform of choice for Enterprise class customers and the SMB. To begin with Microsoft should make Office available for the iPad. Unfortunately nobody knows if or when this might happen. Forbes recently ran the following article on why this isn’t likely to happen anytime soon. http://www.forbes.com/sites/ericsavitz/2012/02/17/microsoft-office-on-the-ipad-dont-hold-your-breath/ Which brings to mind why hasn’t Microsoft clarified its position on the iPad especially since so many of their customers now own one. While Microsoft would love everyone to buy a Windows 8 tablet the adoption rate even under the rosiest scenarios being offered is just not going to make a significant dent in the total market for tablets – at least not yet. Besides making me happy why should Microsoft do this? Microsoft’s failure to make Office work seamlessly across Apple products could open the door for even more defections to Google Apps to occur. Ensuring that the Office franchise works seamlessly with Mac and IOS is not only good for users, but to protect the franchise.

More Questions than Answers

If you were Microsoft what would you do? Will Office 2013 for the Mac will finally rival the Windows version? Who shares more of the blame for lack of compatibility and functionality? Where are both companies going over the next few years? What, if anything, will make them play nicer together? Would universal Office apps across the Apple universe and Android platforms slow the adoption of Google Apps? No matter which way you look the stakes are high and the risks are many for everyone involved. This is for sure – Microsoft/Apple dysfunction only benefits Google and could hurt both of them in the long run.

 

Mushrooms, Apples and Beatle’s: What Apple Should do with All that Cash

Much has been discussed about Apple’s cash hoard and how it can best be used. This discussion often ends with the opinion that Apple should at least initiate a dividend or some other unexciting scenario. Of course I’m not Tim Cook, but that won’t prevent me from suggesting what he should do with all that mounting cash.

I actually first thought of the scenario described below some years ago and shared it with some friends. The thought was that if anyone could pull this off and realize the full value from the acquisition, it would be Steve Jobs. The problem with this idea at the time was the company I believed they should acquire was riding a very hot product cycle and had seen their shares rise dramatically. There was also the issue of whether or not Apple was really committed to their TV strategy. As with every good deal, it’s always about timing. And I believe the timing is finally right.

So what do mushrooms have to do with apples? If you haven’t guessed already, I’m talking about Nintendo. And in the event you haven’t checked in on Nintendo in awhile, here’s a quick rundown. It’s currently in a product transition period. After scoring a runaway hit with the DS and Wii, the company is currently searching for and working to develop its “next big thing”. I believe this has positioned the company in a timeframe where a deal could be done. Nintendo’s market cap is currently around $17 billion and shrinking by the day. In a couple more trading sessions, the stock could be trading at book, which isn’t too far away. But the story gets better. The company is sitting on over $11.5B in cash and no debt to speak of.

The first part of this acquisition is easy to understand—Apple would pick up some great intellectual property and potential protection around the world. There is also the potential benefit of having access to new technology that Nintendo is currently developing in their R&D facilities that could be integrated into future versions of the Apple TV. Based on this piece alone I don’t know that the stock is cheap enough to do the deal, but there’s still more to factor.

Now here’s where I thought Steve Job’s connections, experience with Pixar, Disney and licensing would have culminated perfectly. Just think about the game libraries, characters and licensing that Apple would acquire. Apple could do one of two things with this: 1) They could swallow it whole and have a real game development arm or, 2) these characters could be easily licensed to any number of media studios creating an endless supply of royalties and a kick to Apple earnings for years to come. Who wouldn’t want to license this library? Do you think Disney, Dreamworks, Marvel, EA and others would be interested? Kids are already fascinated with Apple and this would only give them further reach and branding opportunities.

I am reminded of what Paul McCartney once told Michael Jackson. Michael asked Paul what was the best thing he could do with his money? Paul told him he had regretted not owning 100% of the Beatle’s catalog and that he wanted to acquire the 50% of it, held in ATV at the time. Paul said that owning the rights to great music was a good investment. Did Michael heed Paul’s advice? You bet he did. He went on to outbid Paul and others by buying the ATV library which brought with it a 50% interest in the vast majority of the Beatle’s library! I’m uncertain how this affected their friendship, but given Michael’s spending habits this was probably one of his best purchases ever.

While the Nintendo library doesn’t get you John, Paul, George or Ringo, it could net you Donkey Kong, Yoshi, Link, Mario, Luigi, Peach and much more. If you like this strategy (though the chart is ugly), you should keep an eye on Nintendo. This stock could still go quite a bit lower but there is major support around $10 per share. And I think anywhere around book is a good place to begin building a position regardless of whether a buyout ever occurs.

So Tim, if you are reading this, give me a ring and we can plot the takeover of Nintendo together.

* I currently do not own any shares of Nintendo at this time but may purchase some in the future.

2012 Themes and Forecast

The past few years I have stuck my neck out on the line and come up with Themes and Predictions for the upcoming year. 2011 was no different as I not only hit on different technology trends I also tried to predict which companies would and would not be taken over this past year. I had a lot of fun doing this and it is almost scary how well things worked out for these selections. You can go back and read my 2011 Themes and Forecast if you like but for now take a look at the stocks I removed from the M&A possibilities list and notice that every single stock not only was not acquired but all of them except Fortinet was down on the year with the average loss being much worse than the market at -17.3%. This was a really good basket of stocks to have avoided, they were overpriced and this prediction was on the money.

Closing Price Closing Price Percentage of
Company Symbol 1/4/2011 12/31/2011 Changes
Adtran ADTN 36.28 25 -31.09%
Fortinent FTNT 17.49 22 25.79%
Extreme EXTR 3.21 2.8 -12.77%
Juniper JNPR 37.16 22 -40.80%
F5 FFIV 132.07 98 -25.80%
Riverbed RVBD 37.28 22 -40.99%
-20.94%

Of the 8 companies I mentioned that were likely to be acquired 5 had either been acquired, merged or signed agreements to be acquired before the end of 2011. One company split itself in to two pieces and I believe the other two are still in play to be acquired. If you would have purchased this basket of stocks you would have scored a 21.3% gain easily beating the market in general by a wide margin. If you could have somehow purchased shares of Skype or MySpace on the secondary market or simply avoided Sprint which was the real stinker of the group you could have done much better. Take a look at how the M&A list performed below:

Closing Price Last Trade or Price Percentage of
Acquired 1/4/2011 12/31/2011 Change
XO XO Yes 0.69 1.4 102.90%
Global Crossing GLBC Yes 13.01 22.38 72.02%
Sprint S no 4.45 2.25 -49.44%
Blue Coat Systems BCSI Yes 30.24 26 -14.02%
Tekelec TKLC no 11.8 11 -6.78%
NTELOS * Company Split in to two pieces for modest gain
Skype Yes Privately Held – Investors made large gain
My Space Yes Company after floudering moved into passionate hands
20.94%

So to recap the highlights of last year’s forecasts M&A was definitely hot in 2011, the economy muddled along with uncertainty being a dominant theme, Apple did obtain the largest cap in the world shortly before the passing of Steve Jobs, smart phones and tablets continued to invade corporations at a rapid pace and Microsoft got it right with Lync being a breakout product for them.

So what about 2012? Here we go beginning with M&A.

1) M&A – I think M&A will cool down some after the blistering pace of 2011. Most likely we will see smaller deals done as tuck-ins to round out the portfolios of larger entities. The market is definitely ripe for IT service provider consolidation, security related entities, wireless players and for some more strategic cloud acquisitions where I expect the carriers to be active.

  • IDCC – If you haven’t heard of InterDigital before don’t feel bad as they are not a household name, however, many of the brands you know and love have to utilize their patents. With so many companies being taken off the board in 2011 including the acquisition of Motorola by Google the InterDigital wireless portfolio looks might impressive and the stock is trading just a little above its lows for the year.
  • NOK – See a pattern beginning to emerge here? Here is another undervalued wireless play. This is also a major partner of Microsoft trying to compete with the market leaders Apple and Google. This stock is trading close to or slightly below book value. I think this stock could head lower first since Lumia has not done well but keep an eye on them.
  • RIMM – I will not stoop to insulting die hard Blackberry users as I still have one or two friends that love them. The problem for RIM is that one or two die hard customers here or there is not going to help them recover quickly enough. But there is some good news. Even though Apple and Google have been declared winners of the smartphone wars this will not stop Microsoft and others from continuing to try. The market is just too big for them to walk away from. Just look at HP’s ill-advised purchase of Palm not so long ago. Sooner or later Microsoft, HP, Oracle, IBM, Amazon, Dell or someone else will decide that the market is just too big not to have a player in the game and with the market cap getting smaller by the day and no debt there is a good possibility that someone finally makes a play for the company this year.
  • Here are a few more names that have good potential to be taken over in 2012: InterNAP, Netflix, Sprint, Riverbed, Zix and Tekelec.

2) Dot Com Implosion 2.0? – Though having real products, many of the Web 2.0 companies we know, love and hate have seen stratospheric growth and valuations. While these are real companies unlike what we saw 10 years ago we now have some very big expectations to fill. There are a number of high profile companies readying to come public and one has to wonder if the valuations that are being thrown around are realistic. Just looking at the performance of recent IPOs in this space has to make one cautious at this point. Perhaps the Facebook IPO will tell the story.

3) Voice Recognition goes Mainstream – I know you have already heard more than enough about Siri but the bottom line is that everyone has been playing with this technology for years. Microsoft has made huge investment along with a number of other companies and yet none of them has had the success that Apple has in such a short time. This consumer driven technology will now find its way through every business.

4) Windows 8 – Given that enterprises are still upgrading to Windows 7 the biggest impact of Windows 8 may be on either side of the desktop.

  • Since it will enable PCs and Tablets to turn on instantly and potentially run all day, finally the Mac Air will have some legitimate competition. I have also heard developer chatter about a number of Windows 8 powered tablets that have the power of a PC inside enabling a much wider range of applications than current tablets. Look for Windows 8 to drive Ultrabook and sophisticated tablet sales.
  • The Server side of the house will also benefit as Microsoft is boasting a greatly upgraded hypervisor. While Hyper V3 will probably not match everything vmWare can do it should pressure pricing and provide end-users with more options.

5) iTV – When was the last time you were really excited about a television? I think there are legs to the iTV story in 2012. Just look at Jobs own words on this the television experience as penned by Walter Isaacson in his biography of Steve Jobs. Here’s what Jobs said: “I’d like to create an integrated television set that is completely easy to use. It would be seamlessly synched with all of your devices and with iCloud. It will have the simplest user interface you could imagine. I finally cracked it.” I am willing to believe he cracked it and that the first product ships before year-end.

6) M2M – While Machine 2 Machine (M2M) potential has been discussed for some time we are finally seeing a number of products begin to enter the market and fill a niche. Even more interesting is that these offerings are beginning to be integrated with other multi-function devices meaning that this technology is about ready to go mainstream. Look for a wide variety of products to deliver additional value to businesses across the marketplace but beginning with verticals.

7) Smart Wallet – Mobile enabled payment solutions definitely have interest. With both Android and iOS devices expected to come with Near Field Communications (NFC) chips built-in we could this technology gain momentum in the US very shortly.

8) HTML 5 – With Flash biting the dust there will be a mad rush to HTML 5. This will make many websites much more friendly to end-users. The prediction is that the HTML 5 will cut down on the need to design customer downloadable apps. This could make it easier for enterprises to deploy solutions but I don’t see the app store going away anytime soon. There is too much profit motive and the benefit of control for it to disappear.

9) Education – Will be greatly impacted by the tablet explosion – look no further than our local librarians giving lessons on how to utilize your tablet with the public library system. Even more amazing than the technology itself is the incredible amount of talent that can be pooled and captured on a single platform to make learning easier. If you haven’t watched a Khan Academy lesson with your children or for your own benefit you just don’t know what you are missing. http://www.khanacademy.org/ – They have topics on anything you could imagine including math, science, history and art with more lessons being added all of the time.

10) Security – 2011 got us talking about custom malware attacks that seemed almost like something out of a spy thriller. Expect even more custom attempts in 2012. PII also will gain increased visibility as states, companies and consumers all become more concerned.

What do you see happening in 2012?

2011 Themes and Forecast

Last year I stuck my neck out with “10 Themes and Predictions for 2010” and got quite a few things right. I did fall short in two areas, though, as I thought we would see substantial new taxes on telecom to assist with huge deficits (it hasn’t happened in the U.S. yet, but notice they are at least discussing this measure overseas: http://www.cn-c114.net/575/a550527.html ). I also thought we would see a number of tech mergers, and though I was on the money that this would occur, not one of my candidates was acquired. I would like to point out that I wasn’t totally wrong about the companies I mentioned; every one of them was undervalued, and though no other company decided to gobble them up, investors sure did. I bet there are more than a few companies who would have liked to acquire one of these, but now the valuations make it much harder so I’m removing most of them from the likely-to-be-taken-over list. They are no longer undervalued, in my opinion.

Closing Price

Closing Price

Percentage of

Company

Symbol

1/4/2010

12/31/2010

Increase

Adtran ADTN

$22.70

$36.21

59.52%

Fortinet FTNT

$18.00

$32.35

79.72%

Extreme EXTR

$2.90

$3.09

6.55%

Juniper JNPR

$27.18

$36.92

35.84%

F5 FFIV

$53.98

$130.16

141.13%

Riverbed RVBD

$23.85

$35.17

47.46%

Average Return

61.70%

 

This year I will stick my neck out a bit further and get a little more specific with some additional themes and predictions. I look forward to your feedback.

1) M&A Continues – Though I mentioned this last year, there are still some really interesting pieces on the board throughout technology in general and in the telecom space. Most of the companies mentioned below will, in my opinion, either need to acquire someone or be acquired to stay viable.

  • XO – Icahn tried to take it private a while back and does have majority control. They have some nice assets especially in some of their fiber-rich markets. The question is what does Icahn want to do with this?
  • Global Crossing – Some of the best international assets and routes are held inside this company. Keep in mind they have had a ton of financial issues in the past but have had the benefit of bankruptcy to clean some of this up. On the downside, this company is still losing money and sports a negative book value. Global Crossing would be a great asset for a number of companies trying to move upstream in the Global Enterprise space.
  • Sprint – After completing what is perhaps one of the worst mergers of all time, the acquisition of Nextel wiped out billions of dollars of equity, added to debt, brought on a string of losses, caused additional customer support problems, destroyed employee morale, diverted investment from other key aspects of their business, and I could go on. However, you can see that there are improvements being made and even with the $15 billion in debt (if you subtract cash on the books) this company still trades at less than book value. Given that they are one of the major wireless players, would it really be surprising for the company to be reunited with Embarq at CenturyLink at some point or perhaps acquired by Google (which has been floated a couple of times)?
  • Here are a few more names that I think are likely plays due to growth in the cloud, fiber assets or just ripe for consolidation: Blue Coat Systems, Tekelec, NTELOS, Skype and MySpace.

2) Continued Uncertainty – As the recession rolls on (or at least its close cousin, the jobless recovery), it will begin to alter purchasing and business decisions differently even than previous years. Companies will begin taking gambles they would not have even considered three to five years ago. As companies are already operating very lean due to the recession, IT and other leadership will be pressed to continue to find ways to cut cost. This will lead to opportunity for some but also cause many businesses to make risky choices that may not have been thoroughly vetted.

3) Microsoft Goes Three for Four – After scoring hits with Kinect and Windows 7 in 2010, Microsoft finally makes inroads on the Telecom side. Though Windows 7 Mobile may be a bust, some studies have shown that up to 30 percent of Enterprises plan to deploy Lync server in some form or fashion. There are still issues to be addressed but Microsoft appears to have finally gotten many things right.

  • Virtualization supported in Lync Server
  • Requires fewer physical servers (many configurations will need only one server compared to four in OCS 2007)
  • Lync will provide single client instant messaging, web conferencing, presence, voice, voice mail, etc. vs. having separate clients in OCS 2007

4) Smartphones and Tablets Outsell Notebooks and Desktops – This isn’t the demise of the desktop as we happen to be in a major upgrade cycle due to Windows 7. However, phone upgrades are happening at a much more rapid pace than desktops and laptop replacements. Pricing and ease of use makes smartphones and tablets available to a huge audience. Almost every manufacturer has added some form of a smartphone to their line ups and there are very few plain phones left that can even be purchased today. In talking with several customers, I have noted that many executives are planning to purchase large numbers of tablets for their organizations in 2011. This makes me believe that we will see a slew of mobile computing applications for business on tablets by the end of 2011. I don’t think there is any doubt why RIM and others are rushing to get their tablets out. The question is whether they are too late with Apple already having first-mover advantage.

5) Security – Security will continue to be move up the IT agenda as general socioeconomic strains expose additional needs and requirements. Mobile security breaches and management will become a major focus.

6) Compliance – Look for compliance and standards to be a major cloud driver in 2011. Many players are working as hard as they can to achieve multiple levels as quickly as possible.

7) New addictions and ailments will be linked to high social media and mobile device usage.

8) Apple obtains largest market cap of any company in the world during 2011. How does this happen, even with Exxon potentially having much higher oil as a tailwind? We’ll see iPad momentum with new models, Verizon and potentially other carriers get the iPhone soon, a continued Mac-Halo Effect and the sleek Mac Air. You never can discount what Apple might have coming down the pipeline. Even from a valuation standpoint, when you subtract Apple’s cash from the stock price, you get a very low PEG ratio.

9) Mobile Photo Sharing – Social media photo sharing gains momentum in 2011 with almost every device coming with a camera. Timing couldn’t be better for applications like Instagram http://instagr.am/.

10) Crowdsourcing – Continues and gains major momentum crimping traditional agencies and attracting considerable talent from a large talent pool of disenchanted and displaced workers.

Let me know what think will happen in 2011 or if there are any additional technologies that are especially interesting.

In the interest of full disclosure, I do own shares in some of the companies mentioned in this BLOG.