Like many investors, I dumped Google's (GOOG) stock following its January 12 announcement that it would no longer censor the results of its search engine in China. Google was one of the top holdings of my Silicon Valley 2.0 fund. The portfolio has outperformed the S&P by over 30 percent annually for the last two years and I did not want to let Google's China Syndrome drag the fund down.
The tide has begun to turn for the Silicon Valley titan recently as its Google Voice initiative gains traction. Its stock has outperformed the tech-laden Nasdaq since its August 25 announcement that Google Voice has been enhanced to allow its users to make and receive calls through Gmail. The emergence of Voice over Internet Protocol (VoIP), and the distinct possibility that Google may dominate this telecommunications paradigm shift, has settled the nerves of anxious investors.
An epic battle is brewing over the future of communications. When Google Voice introduced its Gmail feature, it was advertised as an historic event. A promotional infograph and short video chronicled the history of modern human communications. It's ironic that a Federal Communications Commission investigation into Apple's (AAPL) initial rejection of a Google Voice app for the iPhone involves the three most important corporations in the past, present and future of communications. The third party to the FCC investigation, AT&T (T), was once the most widely held stock, largest and most respected company in the world. Riding the coattails of the shift to wireless communications and the popularity of the iPhone, Apple has ascended to that throne. Google does not appear to have lost its mojo, however, as it waits in the wings while it lays the groundwork for the future - VoIP.
The VoIP market is set to double in the next five years to $20 billion, according to forecasts by ABI Research. A huge part of that growth comes from the rapidly increasing deployment of Session Initiation Protocol (SIP) trunking, which enables voice and video communications over the internet. The proliferation of SIP trunking has led to the skyrocketing use of Session Border Controllers, devices that control the traffic and provide security for VoIP networks. "The SBC market is on fire," exclaims Diane Myers in an Infonetics Research report last month.
The SBC market leader is Acme Packet (APKT). The Bedford, Massachusetts company is the top holding in my iTech fund, which has outperformed the S&P by some 31 percent annually. Acme's stock has more than quadrupled this past year. Its revenue is forecast to grow some 54 percent for the fiscal year ending in December.
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As efforts to stem the erosion of legacy landlines has proved futile, both AT&T and Verizon (VZ) have begun to deploy residential VoIP services more widely. Last year, Verizon announced that it plans to move to an all-IP network in seven years. VoIP services for Verizon Wireless customers are also being overhauled as the telco giant builds out its next generation LTE network. "By 2012, the voice we sell on LTE will be VoIP," says Lowell McAdam, Verizon Wireless CEO.
Disclosure: Long APKT