2014 Themes and Forecast

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Last year’s “2013 Themes and Forecast” were on the money. It almost scares me to pick any M&A or rebound targets this year with the market having run up to a high point, and with the Fed claiming that tightening is coming. ‘Puts me in the nervous camp, but let’s go ahead and get started on some predictions for 2014.

Nuance – Is clearly a leader in voice recognition. You would think with the explosion of Siri and other voice-related systems this stock would be on fire. Unfortunately, the company has made a number of blunders and is in the midst of changing their business to a recurring subscription model which will further impact earnings. With a number activists pressuring the company to get their act together, and Icahn buying more shares at depressed prices, I like the risk/reward that the company gets it together or gets taken out.

Rackspace – Is a leader in cloud computing. However the company has been bashed due to reports of Amazon price cutting, execution errors, missing features, slower growth than many expected and their big bet on the OpenStack ecosystem. Rackspace also has one of the poorest partner programs in the industry which sends droves of opportunities to a number of their competitors. So what’s to like? Long-term, OpenStack has some prospects and the stock got a boost from the recent RedHat announcement of it being a big growth driver. With the stock down well over 50% from its high earlier this year, the valuation is much more appealing and there is pressure mounting on management to get it right. I see this company becoming part of a bigger organization in the long run.

Fortinet – Stays on this year’s list as I still think the installed base and valuation is appealing. There’s still too much overlap in this space which makes it ripe for consolidation.

Multi-Fineline Electronix – The company has an X in its name so you know I like it already.  MFLX is another one of these turnaround stocks as it trades below book and has been hammered due to bad news. With much of this linked to Apple and Blackberry, the company has worked hard to reposition itself for a rebound or possible acquisition. One kicker with Apple poised to launch new products is that they could potentially benefit from any new announcements.

Game Stop – Is one stock to sell. Of all stocks in the market today, I’m not sure any scare me as much as Game Stop, though it has rebounded like crazy from the XBOX news that they would stop allowing games to be resold. Long-term, games will be distributed digitally. Software is where the margin is, so I just don’t see how Game Stop will be able to reinvent itself. It seems they will suffer much the way Blockbuster did, yet the stock is near all-time highs. I hope they prove me wrong as I’ve enjoyed perusing their stores for many years.

Blackberry  – I still believe these guys may get taken out or that the company will be split into a couple pieces. There are some great assets in the company but they need to move quickly.

In general I expect more consolidation in the cloud space.  I am also worried about social media stock valuations as they are once again beginning to concern me.  Twitter, Yelp, Facebook, LinkedIn and others are beginning to look quite expensive as we begin the new year.

Now on to the non-stock specific outlook.

Leather Wallet Goes Away, Almost – After years of battling technologies, it appears Bluetooth has begun to chip away at the payments space. If this happens, we could reach a point where we need to carry little more than a phone. There are a number of winners and losers if this comes to pass.

Microsoft Mobility – As smart devices are linked to the cloud, they are one of the easiest devices to replace. This actually works to Microsoft’s benefit as they eat into Samsung and Apple sales ever so slightly. The big question over the next couple years is whether Microsoft’s enterprise offerings are strong enough to drive sales of their mobility products that offer full integration. This will largely depend on the focus of Microsoft’s new CEO.

Amazon – Finally faces backlash as a number of companies finally wake up to the realization of the great threat Amazon poses to their ongoing survival. The list of companies at risk of extinction or severe retrenchment due to Amazon’s competitive positioning is so large that Wall Street is putting up with Bezos’ spending and results because the endgame is so huge. This is a fact that Rackspace and the OpenStack movement must capitalize on before it’s too late.

IoT – Becomes more seamless. Connecting all of the wearables and appliances in the world may be cool, but if they require separate apps, charging, maintenance, logins, portals—and the list goes on—they will be more cumbersome than they’re worth. Single collection and coordination of this information becomes critical for many of these technologies to achieve mass adoption. Manufacturers must get this right or risk burnout.

Breaches on Mobile Devices – Become more common, forcing companies into modifying BYOD requirements and enforcing MDM.

Outsourcers and Integrators Disappear – Most of this will be driven by two factors. Companies that haven’t invested enough to compete on their own will be acquired for their customer bases or will go out of business. Companies that are growing, offer unique value adds, and are versed in new technologies and business models will be acquired by companies attempting to catch up or solidify their positions.

Encryption – Finally goes mainstream. Let me sum it up in two words: Snowden and China.

Google Glass – Was finally released to a lukewarm reception.  I saw someone with a pair on the other day and I can’t see someone wearing these on a daily basis. There just isn’t a killer app today for the general population as there are too many flaws. Perhaps down the road this will change. Anyone remember the Newton? Sometimes you’re just a little too ahead of your time. I can see vertical usage with the device for mechanics, travelers and other specialized fields.

Smarter Software and Machines Everywhere – IBM now claims they can identify your personality by reading as few as 200 of your tweets. Technologies to analyze every bit of data created are exploding, and we are just seeing the tip of the iceberg.

3D Printing – Creates an entire new economy. Over time, the technology will decimate old business models while generating new ones. People are just figuring out how to use these tools, so ethical implications and the potential for infringement will be high. If you thought theft of online music and movies was a problem, wait ‘til you see how criminals leverage 3D printing.

Apple – I’ve been wrong on Apple the past couple years so what do I know. I do think Apple still has some tricks up its sleeve. This has to be the year they come with a wearable and/or a TV (or should I say home entertainment system?). Expectations will be incredibly high due to the delayed shipment of these products. Apple has no margin for error—they will have to be measurably better than what is on the market today or they’ll have to define a new category. My guess is that they get at least one of these right.

Disclosure – I am currently long Rackspace and Nuance.

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REVIEW OF 2013 THEMES & FORECAST

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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.

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Products That Get You Thinking

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We can become so completely engrossed in what our business is doing today that we fail to know much about the rest of our industry, much less adjacent or completely unrelated fields. However, I enjoy scouting for new products and services as a means of inspiration. Innovative new products, and those about to come to market, help me stay current and stimulate ideas that might help the businesses in which I am involved. They often get me thinking about how to apply technology or solutions differently, or help me personally in some way. The following are several that have got me thinking recently. Hopefully they will do the same for you.

After being blown away by “The Boy Who Harnessed the Wind” (a must read) some time ago, I’ve been fascinated by technologies that many of us take for granted. Electricity and lighting are things we rarely give pause to, but the absence of these technologies in many countries effects well over a billion people. Twenty-one percent of the world’s population does not have access to reliable electricity. Many still use kerosene for light. That is why I was amazed at the simplicity and execution of the GravityLight. The product is now in production.

Pong Case – A new phone case, so what’s the big deal? This one definitely makes you wonder if they can back up their claims – increased outbound signal by 44%, increased range by 20%, reduced SAR exposure by 82%, built-in antenna that instantly pairs with iPhone 5s when snapped on, and can take six-foot drop. All this with a 60-day, money-back guarantee. Does this product live up to even half its claims? I intend to find out when mine is delivered later this week.

A cardboard bicycle made for only $9? I had been following this story for some time and was amazed at the possibility of a functional cardboard bicycle which could be made for $9-12 and sold for around $60-90. With bicycles providing a major form of green, economical and practical transportation for people worldwide, I was interested to see what would come of this. Check out one of the stories from earlier this year on the cardboard bike.  Unfortunately after gaining some early momentum this crowd-funded project hit some potholes especially in light of the much higher than expected price. Regardless of what comes of this, and if or when we ever see a cardboard bike come to market, it’s an amazing demonstration of how powerful crowdsourcing can be from a variety of perspectives.

Another concept that fascinates me are wearables—computer-powered devices that can be worn—as we’re only just beginning to scratch the surface of this space. While many of these technologies need time to be refined, it’s interesting to see how vertical a device might be, such as a watch made for the hard of hearing or deaf. On the other hand, some of these applications have endless uses such as Bluetooth Tracking Stickers. These have mixed reviews but I am definitely intrigued by the idea.

Did any of these products resonate with you?  What gets you thinking about new ideas? Where do you look for inspiration? I would love to hear from you if you come across an interesting solution or product that is still out of the mainstream.

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Planning to Attend SXSW Next Year?

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Here’s what you should prepare for…

The Down-Low
Long lines waiting to get into sessions. Many people turned away from key sessions, instead watching in satellite rooms with a video feed. Trying to get overpriced food in the rain in a tent too small to call comfortable. Being crammed into venues not really designed to handle the number of participants. More than 30,000 people from 56 countries all in one city. 1800 speakers hosting more than 1000 sessions. Constantly trying to geo-locate the building for your next session. High hotel rates and difficulty finding a room. Lots of walking and shuttle rides. Sore feet.

The Upside
Meeting smart and fascinating people from around the world. Hearing some of the most interesting authors elaborate on their cutting-edge research. Learning about the projects that startups are working on, and seeing application of new technologies. Getting a feel for what’s coming next. Feeling the excitement of being around so many enthusiastic people. Feeding off the collective energy.

What That Reminds Me Of…
Bottom line? SXSW reminds me a lot of attending my first COMDEX show with my dad in the 1980s. There just wasn’t enough infrastructure in Las Vegas at the time to support what was becoming a wildly popular event. Today is a different story, but back then, exhibit halls in Vegas were strung across the city in hotel after hotel, using any available convention or meeting space, inelegantly tied together by shuttles. Early on at COMDEX, there was a buzz of excitement as it was rarely known what awaited you at each stop. Already, there were vendors from around the world. In the early days when the PC began to take off, there was a similar sense of excitement and potential. Granted, there are some major differences from SXSW, but also a number of noteworthy similarities when it comes to assembling such a massive gathering in Austin.

2013 SXSW Highlights

  1. Elon Musk – It was great to hear him speak. I walked away thinking he’s not only a very smart person but incredibly skilled at marketing himself and his companies. Don’t know the name? Here is some quick info: co-founder of PayPal and Tesla Motors; CEO, CTO and Founder of SpaceX; and Chairman of Solar City. Has been compared to Henry Ford and provided the inspiration for Tony Stark of Iron Man movie fame. During Q&A he was asked “What was your biggest mistake?”  And his humble response, “I don’t know… I have made so many of them.”
  2. Al Gore – His writing style may be a bit choppy but he loves to study, read and research. Some of the pieces he has compiled lend heavily from travel, networking, board meetings, and the variety of experience which leads to some interesting insights. My key takeaway included some of his points on biotechnology regarding the increasing manipulation of DNA to produce not only organisms with novel features, but new materials and fuels as well.
  3. Bre Pettis – Co-founder and CEO of Markerbot, Bre had an enthusiastic presentation on the opportunities created via affordable 3D printing. My favorite moment was when he described the use of this technology to help children without hands to have a prosthetic made otherwise cost prohibitive. If you weren’t already excited about 3D printing, this presentation got the wheels turning.

Here’s hoping Austin and SXSW figure out a better, more effective way to handle the crowds next year. In the meantime, I definitely appreciated the benefit I derived from the chaos. Let me know if you will be there next year!

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2013 Tech Themes and Forecast

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Here is a look at this years Themes and Forecast.  To see how last year turned out you can read the 2012 Themes and Forecast or check the results.

  1. M&A for 2013 – I expect quite a few mergers of necessity. This doesn’t mean they will take place at the most advantageous price for purchasers or shareholders.
    1. FTNT – Let’s start with a former pick, Fortinet. This stock has gone nowhere in a couple of years and needs a partner. If the stock trends lower there could be takers.
    2. DLB – Dolby Labs has some investors concerned due to patents expiring and Disney’s ownership of THX. That said, Dolby has a wildcard that isn’t talked about much—the patents to NFC. If you believe NFC is finally going to gear up in 2013 or 2014, then Dolby could be a great buy for any number of companies. With the stock nearing its five-year low, it is definitely one to keep your eye on.
    3. RIMM –  I know there is hype on the new operating system, but the odds of this truly being a game changer are extremely slim. The RIM faithful, hoping this might finally be the device that saves the company, will be out in force so look for the stock to bounce. That said, I still believe the company will be taken out later this year when the hype dies down.
    4. PANW – Palo Alto Networks is a leader in the security space having pioneered Next Generation Firewalls. Though the business is growing quickly, it has seen its results lag behind expectations, putting the stock under pressure. The valuation is still on the high side. For someone like Cisco that needs to do deals in 2013, a better deal may be had in the near future than before the company went public.
    5. GRPN – We know about the problems, but they still have a large active user base. I liked it better before the run-up, but I think someone will take them out (though it may need to go lower first).
    6. TZOO – With all of the consolidation in the travel space and the stock under pressure, Travel Zoo could find itself taken by a larger player in the industry.
    7. YHOO – Marissa Mayer has gotten the attitude turned around and brought some swagger back. Can you sense it? Perhaps they don’t need to be acquired at this point, but wouldn’t it be funny to see Microsoft come back now that the company is turning. Don’t forget they still own a good-sized stake in Alibaba.
    8. Other possible companies that could be acquired in 2013 include Brocade, Adtran and NetApp.
  2. Apple Has to Do Something New, Right?  – While I could talk about why an iTV type of product still seems likely, I am going to switch my focus to personal M2M. Just walk into an Apple store and what do you see? All sorts of devices that communicate with your PC/Smartphone/Tablet via Bluetooth or the Internet. What do these devices do? Some of the early models analyze how well you sleep, give you a high level display of alerts on your wrist, track how many steps you take, how much exercise you are getting, etc. Even Nike has gotten into the fray. In December, the FDA approved a heart rate monitor for the iPhone. In 2013, Apple will jump into this space with a wrist based device to gather and share data. The new Apple Nano should have been this product but we will have to wait until 2013.
  3. Facebook Comeback – Facebook has their hooks into everything and in 2013 their monetization of those inroads will become more evident as the stock works back to the IPO price with a few detours along the way.
  4. Smartphone Cameras – Smartphone cameras are now a given but the quality is still lacking. Sure, it is acceptable for posting to Instagram but in most cases just not quite good enough to replace dedicated portable cameras. This year we see a number of major improvements that will widen the usefulness.
  5. Cloud War – There are just far too many services in the cloud so expect mergers, failures and new product launches. Apple, Google, Amazon and Microsoft all have strengths and weaknesses in the cloud today. Look for this war to heat up in 2013 as we haven’t seen anything yet. There are a number of platforms and products ripe for the picking. Pinterest or Yelp anyone?
  6. Crowdsourcing Goes Mainstream – This trend was identified in 2011 http://www.liquidnetworx.com/2011/01/ and has grown greatly. With the public and mainstream media finally getting wise, we will see it everywhere in 2013.
  7. Microsoft – The company finally makes some headway with their Windows Phone 8 and launches a new Xbox. By the way, the prediction that Lync would be a huge success two years ago has continued to hold true. UC strategists are stating that Cisco now views Lync as their top threat even above Avaya. Lync will make even further inroads in 2013, hurting Cisco and Avaya in the process.
  8. Laws Slow Cloud Adoption for Large Companies – There are still many questions. How would an internet kill switch possibly affect enterprise customers? Even outside of a black swan event such as this, there are still too many gray areas that risk-averse companies just can’t get around. For big companies, there is still little case law and precedents to reference. Look for consumers and small businesses to continue marching into the cloud eyes wide shut.
  9. Platform as a Service (PaaS) to Explode – These offerings have been limited but as businesses get more involved this segment should start getting more action. Note: Oracle recently took a stake in Engine Yard to get a foot in this space.
  10. Flexible Displays – New materials will allow new form factors for a variety of displays. Samsung is already rumored to be preparing a smartphone that will use this technology.

What do you see happening in 2013?

Disclosure – I am currently long Facebook.

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Review of 2012 Themes & Forecast

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With 2012 in the books, let’s revisit last year’s predictions (click here for 2012 Themes & Forecast) and let’s see how the predictions matched up to what actually happened.  Let’s start with a review of last year’s M&A stocks and see how they did.

2012 M&A Picks with Performance Data
Closing Price Last Trade or Price Percentage of
Acquired 1/6/2012 1/4/2013 Change
InterDigital IDCC No 42.07 44.12 4.87%
InterNAP INAP No 5.74 7.05 22.82%
Netflix NFLX No 86.1 95.98 11.48%
RIM RIMM No 15.34 11.95 -22.10%
Nokia NOK No 5.24 4.16 -20.61%
Sprint^ S Yes 2.19 5.92 170.32%
Riverbed RVBD No 25.77 21.14 -17.97%
ZIX ZIXI No 2.96 2.9 -2.03%
Tekelec* TKLC Yes 10.95 11
Average Gain 18.35%
* – Accidentally listed from the prior year as they had already agreed to be acquired
^ – Still trades but majority stake taken by Softbank

Highlights of 2012 – On the Money

  • M&A cooled a little but some very interesting deals got done. Your money would have done well in these stocks. Overall, if you held every stock absent Tekelec, your return on equal dollar positions in the other stocks would have netted you a return of over 18% for the year, beating the DOW and S&P 500 handily. Tekelec (which was removed from the portfolio in January 2012 as the merger was finalized) should have been omitted because it was a holdover recommendation from 2011, already in the stages of acquisition.
  • Sprint was a huge winner, nearly tripling in price on the purchase by Softbank.
  • Netflix could have booked very big gains if you sold early in the year (which would have really juiced your performance as it reached a rapid high of $129 in early February). If you are still holding, keep in mind Icahn joined this party in the fall.
  • Dot Com valuations finally got caught in the hype for many firms. Facebook, Groupon, Zynga, Pandora all saw their shares drop precipitously before rebounding slightly.
  • Microsoft shipped Windows 8 and sales have been lackluster at best for their desktop upgrade.
  • Online education gained major recognition in the media and from new users being introduced to the medium.
  • M2M gained major momentum and appears ready to catch fire. Networks of sensors with direct M2M connections now underpin connected health care and consumer-ready automotive telematics. Verizon is so hyped on this space they went out and purchased Hughes Telematics to grab a share of this pie.

Lowlights of 2012 – Early Though Still Possible

  • M&A never happened for RIM, Nokia or Riverbed. Their stocks were down quite a bit on the year before rallying. I am not a huge RIM fan, but surprised that it still hasn’t been acquired by someone.
  • Apple did not release the killer iTV product but more on that in a moment.
  • Microsoft tablets have done much poorer than expected. I believe this has to do with Microsoft deciding to leave their channel out of the mix thus leaving behind their most critical asset in competing against Apple. Is it too late to correct?
  • Mobile payments have continued to advance but no thanks to Near Field Communications (NFC) which have failed to get enough chips deployed to have any serious impact.

What could happen next year?  Check out 2013 Tech Themes & Forecast.

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

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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.

 

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

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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.

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2012 Themes and Forecast

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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?

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Top Five Things Not to do on LinkedIn

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While a tremendous amount has been written about how to leverage the web with social media, there hasn’t been nearly enough written about what NOT to do… and even if there has, there are not nearly enough people listening. Here are the top five taboos I see people try on LinkedIn.

  1. Overuse of “Visionary” –  If you have to describe yourself on LinkedIn as a “visionary” you are most likely not one. Let someone else call you this, and don’t post it on your profile.
  2. Bad Photo Selection – Because it’s your professional profile, don’t post a picture of your child, car or some other confusing image. The imagesize is small to begin with, and if I’m trying to remember who you are (especially if I only recently met you),  I’d prefer to see a picture of good enough quality that I can actually recognize you.
  3. Self-Aggrandizing Thought Leaders – See “visionary” above.
  4. Unsuitable Recommendations Requests –  Don’t ask for undeserved recommendations, particularly when a) you barely know them, b) they really didn’t do anything with you worth recommending, or even worse c) when they actually have a poor opinion of your work product.  Talk about an awkward request!
  5. Connection Collectors – People who connect to people they have never met and have nothing to share are far too common. They often send a connection request with no explanation whatsoever or even worse they claim to have worked with you previously while you have no clue who they are.

What are your top 5 things not to do with LinkedIn or social media in general?

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