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?