Revisiting 21 Bullish Predictions for Tech
Checking up on and further discussion of August's tech predictions.
At the end of August, I laid out a list of predictions for the tech sector through the next six to 12 months. Below, I will review the list and check up on the progress of some of the predictions:
1. The next year's M&A activity is led by the tech-rich Nasdaq stocks, which have the best balance sheets, loads of cash, strong free cash flow and strong EPS growth.
- Check 1: In what I felt was the first or second most important ingredient in this list -- Tech M&A is nearly en fuego currently: Applix (APLX) gone, Nokia (NOK) / Navteq (NVT), 3Com Corporation (COMS) gone, Arris Group (ARRS) / C-COR Inc. (CCBL), Spansion (SPSN) / Saifun Semiconductors (SFUN) and Business Objects (BOBJ) finally gone. Couple this with rumors of Tellabs (TLAB) getting a close look by several firms, Rambus (RMBS) rumors and a Marvell Technology (MRVL) private equity rumor floating around – suffice it to say tech M&A is leading the charge currently.
For what it's worth I like the ARRS/CCBL deal and I think TLAB's could fetch a large premium over their current price.
2. Tech sector EPS growth will either lead or be one of the top three performing sectors over the next few quarters.
No check yet, but there will be by quarter end.
3. Furthermore, the tech sector will have positive EPS growth in a market where a greater number of firms will experience decelerating earnings growth.
See the comment above… couple that with earnings declines ongoing in housing and finance. Also, some former leading EPS growth sectors will start seeing flat to slowing growth.
4. Broadcom (BRCM) and other chips companies become performance leaders among a strong Nasdaq backdrop.
Call this check 1.5: BRCM has delivered so far and other chips stocks should follow suit in the coming weeks/months. The SOX has been consolidating for a few months now and is sitting close to break-out level. Intel (INTC) just delivered another high quality quarter and the market's response (in Semis) was muted for much of the day.
5. AT&T (T) finally embraces a more Fios-like service and materially increases spending on both the wireline and wireless network infrastructure over the next couple years.
6. One or more deals are announced in the networking space.
Check 2.5: COMS was aquired by private equity. This is actually one of two deals in this space I saw as quite likely.
7. Retail sales for consumer related tech will remain fairly strong.
Check 3.5: Smart phones, gaming consoles, PC's, Mac's and peripheral sales in consumer related tech have all been quite strong.
8. Apple's (AAPL) new Mac lineup and OS are hits and surpass expectations.
We'll wait for this quarter and through the X-Mas season to fully pass judgement. So far early reports have the new Mac line-up selling well.
9. One or more of Google's (GOOG) next four quarters will be like Research in Motion's (RIMM) last quarter, helping to boost GOOG's share price past $625.
Check 4.5: As far as the quarter goes, we could find out tomorrow, if not the next quarter… But GOOG hit $625 and then some already. GOOG closed at $512 as of publish date for this piece.
Check 5.5: EBAY reported strong numbers and I expect AMZN to be solid as well, while brick and mortar retailers are mixed at best with many struggling.
11. A large private equity deal gets announced in the tech sector.
Watching and waiting here. However, Tektronix (TEK) got bought by Danaher (DHR) which is intriguing to say the least. It's been some time since a conglomerate has bought a technology company. I would say DHR is looking for growth of revenue, earnings and free cash flow with this purchase and that gorgeous balance sheet of TEK's makes the deal go down pretty easy.
12. Gas prices drop another 10-20% at the pump.
Haven't changed my opinion here, and feel many commodities are forming or in extended topping patterns.
13. Microsoft (MSFT) gets its M&A groove on in a material way, leading to the stock posting multiple quarters of out-performance versus the S&P 500.
No new M&A from MSFT, time will yet tell.
14. A GOP candidate starts showing some strength and draws into a question a certain Democrat victory for president.
Check 6.5: Thompson and Giuliani are picking up steam. We are now beginning to have a race. If Giuliani can win the GOP race, I think he'll win next November. The question is can he take the GOP?
15. The Halo 3 launch is very successful, reigniting sales of the new gaming consoles, gaming peripherals and materially increasing bandwidth usage over certain networks.
Check 7.5: Halo 3 did $300 mln in a week. A billion-dollar video game is well within reach now. Reported sales of Xbox 360 are rising again and MSFT will really see monetization benefits from Xbox Live in the coming quarters. As Xbox Live heats up further we will begin hearing of the increasing load on many ISP networks.
16. The prices of copper and the "other" commodities fall as much if not more than oil.
The question is, will many commodities reach their zenith before or after the summer games in China?
17. The price of oil goes back to $55 or lower.
18. The Fed cuts rates 75-125 bps over the next year.
Another half check gets me to 8: The Fed cut 50 and I think we will see the other 25-75 bps in the coming months/quarters.
19. Both Microsoft and Cisco (CSCO) trade in the $35-40 ranges for part of the next year.
CSCO has made a good move in the last couple months, while MSFT has been pretty well pegged to $30.
20. The bandwidth constrained world feels more of a pinch: Verizon and AT&T both experience solid or increasing rates for their wireline business services. Global Tier 1's also benefit. This also funnels down into more specialized high-bandwidth providers and fuels additional but more rational capex spending in fiber, core/edge networking, long haul, storage and commercial based server/computing sales.
VZ and CMCSA has both made numerous bullish comments on both continuing bandwidth investments and solid results these areas are producing for them. See my AT&T comments above.
21. Valuations finally start expanding in the tech sector after more than half a decade of valuation compression.
Check 9: We have just started seeing a valuation expansion in many areas of Technology, though medical Tech is still lagging. The Naz has been leading the other indices in recent weeks. I expect that to be a continuing theme for the next few quarters at least, though bouts of volatility could be surprisingly severe.
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