The Three Horsemen of Tech for 2011
Various members of the NetNet crew are in and out this vacation and snow-filled week, so we've asked a few friends to fill in. The following is from hedge fund manager and financial columnist James Altucher ...
You want to see a "V"? Look at the rebound last year in spending of software and equipment by businesses:
— Basically, tech is going to benefit from two things...
A) the continued growth in GDP (six quarters in a row of GDP growth) as people finally relax the IT purse strings and order computers again. And, more importantly...
B) the super-boom in smartphones. Everyone is getting an iPhone or Android phone all around the world. It's the biggest tech boom since the 90's and its occurring next year.
Here's some headlines:
- Samsung to sell 40mm smartphones in 2011
- HTC plans to ship 60mm smartphones next year
- Verizon Wireless to sell 25mm smartphones in 2011
The smartphone boom is equivalent to the Internet boom that occurred in 1995 when Netscape first reached critical mass and Windows 95 was released. Only this is bigger. Here's why:
A) Many more applications available to take advantage of the wireless connectivity. In 1995 there were hardly any websites or mission-critical applications that required the Internet. Now, Angry Birds alone is enough to bring down the AT&T network on a busy Saturday.
B) All of the new smartphones are video-ready. Many of them require real-time video capabilities with video chat. But at the very least Hulu +, iTunes, Netflix , and Youtube should keep all of the networks busy.
So I'm taking it back old school with the three tech horseman from the 90's.
Microsoft . You may have forgotten this little microcap company. The stock has gone nowhere in the past decade. In fact, it was down 10 percent so far in 2010 with the market up 12 percent. That's pathetic. Bad Microsoft! But here's why things will turn around in 2011 in addition to the macro reasons outlined above:
- Stock is doing a $40 billion stock repurchase, with $10 billion of that happening this year.
- $30 billion in the bank
- Trades for less than 8 times next year's earnings (when you back out cash). Compare that to the S&P 500 which trades for about 13 times next year's earnings despite the fact that Microsoft's earnings will grow twice as fast as the S&P earnings over the next five years.
- Much of Microsoft's revenues have shifted to subscription revenues making their earnings very predictable.
- Kinect for Xbox is bigger than people think. It will sell $500 million worth next year but $5 billion worth in 5 years. And applications will be created for it with very high margins.
- The developing world is unleashing the purse strings on corporate IT. Microsoft is the prime beneficiary (followed by Cisco and Intel).
I don't need to outline Cisco and Intel . It's almost the same reasons as above. Cisco powers the Internet. Intel still dominates PCs.
You can ask, but aren't computers going to go away because of the smartphones. The first answer is, "No", but let's say the answer is "Yes".
Right now Qualcomm makes the chips for the Android phone. Intel has dealt with competition before (remember Advanced Micro Devices ? remember Transmeta?) Intel will spend $10 billion or so to defeat Qualcomm and become the de facto standard for Android chips. So at less than 10 times earnings my bet is on Intel for the next decade. Similar with Cisco.
Juniper Networks , as usual, keeps Cisco on its toes but nobody even comes close to the full integration of bandwidth plus security that Cisco (at also less than 10 times next year's earnings) provides.
Read more from Altucher on his blog The Altucher Confidential.
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