Monday, January 03, 2005

It’s a tough market- pick your stocks wisely

Welcome to the New Year; hope 2004 was a successful one for all. Here is a short summary of what I am thinking for this year and longer-term in tech. Some of the semis could have issues given limited growth potential as the largest consumption of semis- PC becomes a replacement market. As likes of WMT offer $400 laptop. Semiconductor growth will likely come from FTTP, GbE, HDTV/ATV, IPv6, 3G, VoIP, & advanced set-top boxes. But tough pricing (as inventories loom) and street estimates ahead of reality could cause trouble. Same with Semi Caps as end market is tough with number of customers shrinking (how many of us can afford a $4b fab?) and too many suppliers that are offering newer technology equipment at older technology prices- really that won’t fly for too long. Overall Software growth is slowing as well, with acquisitions becoming the growth play but small niche players having better luck growing. Service is where growth will be. Look for outsourcers to grow, SAY is hiring 30,000 employees- do you know any one else doing that kind of hiring? More and more outsourcing firms will focus on moving into higher level/system level work. Hardware is commoditized but software value will keep the boat afloat, count on SUNW to get into other verticals using their processing prowess. Storage is doing ok due to some underinvestment, Sarbanes-Oxley and data growth but pricing needs to be watched. Telco equipment will have very focused growth especially in IP/MPLS, FTTx, 2.5G/3G, next-gen SONET, Metro Ethernet. Handsets will grow but tough to make money unless you are QCOM. Infrastructure suppliers will become more service driven than hardware driven. Look for NT, ALA, LU to basically give away equipment to sell service contracts as Chinese move into equipment game and partner with these “old guards” for mutual benefits. CSCO acquisitions last year focused on buying software intelligence because hardware will become commoditized and differentiation will be from services and/or software intelligence. Overall tech will be tough so pick your stocks wisely.


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