Having covered technology for 30 years come this January, I've seen patterns repeat themselves over-and-over.
As early as the mid-1990s I called these patterns “clues,” and began identifying companies as “clued-in” or “clueless” based on what I saw as their own understanding of the medium-term future.
The general clue is Moore's Law. It has many different dimensions. In practice it has meant that things get better-and-better, faster-and-faster. That still remains true, even if circuit lines aren't approaching one another as fast as they once did. And anyone who bets on change ending is going to lose the bet.
Another important clue is that the customer is always right. Any company that tries to force its customers into a direction they don't want to go, in the name of protecting its own margins or position, is going away. Any executive that condemns “the users” should not be listened to.
For investors this means no lead is safe. Complacency is your worst enemy.
What changes can investors expect in 2012? Expect the unexpected. I've got my predictions here, listed from most to least-likely, most-to-least predictable. Use the thread to add your own and we'll all make money from this exercise.
The Cloud Starts to Bite – Every enterprise company is moving to the cloud, or pretending to. Dell (NASDAQ:DELL) and HP (NYSE:HPQ) are building clouds. Every web hosting company is using cloud technology to save money and stay in business. Enterprise software must adapt to running inside a cloud architecture, or customers will look elsewhere and licenses will be canceled.
To me this implies a compression of margins between current cloud vendors like Red Hat (NYSE:RHT) and VMWare (NYSE:VMW) and bigger companies that now know cloud is the way forward. But as this occurs, the cloud vendors could easily become takeover bait. Already companies like IBM (NYSE:IBM) are grabbing small, leading edge cloud-based vendors. If the economy goes well expect some big takeover battles.
The Law – America has come to understand that the Internet can't remain a lawless enclave. Serious efforts will be made to create, and enforce, domestic Internet laws during the next year. These laws will, of necessity, be enforced pre-emptively, execute first and trial later. But the more common a legal violation is (and copyright violations are incredibly common) the less efficient enforcement is of necessity. Thus giant content companies like Time Warner (NYSE:TWX), News Corp. (NASDAQ:NWS), Disney (NYSE:DIS) and the like are going to be disappointed. They can't rely on laws to save them. They must adapt to new business models.
Content Middlemen – Publishers and broadcasters are mere middlemen between artists and consumers. If they don't show real value they will be pushed out .. by Amazon (NASDAQ:AMZN), by Apple (NASDAQ:AAPL), by Google (NASDAQ:GOOG). The comedian Louis CK made $1 million in five days selling his latest comedy special at $5 per copy, with no Digital Rights Management (DRM). That's a lot more than he would have made with any network.
We already have a growing podcasting and webcasting industry. This direct route between artist and market will grow, making technology more powerful and middlemen less powerful. Companies like CBS (NYSE:CBS), Viacom (NASDAQ:VIA) and Comcast (NASDAQ:CMCSA), which exist solely as middlemen, will feel the squeeze.
Baby Boom Retirements – My generation is giving way. Technology is very much a young man's game. Jobs is gone, Gates is gone, Ballmer is going. This means Mark Zuckerberg (Facebook's IPO will be a huge story, whether it booms or bombs). The future lies in leaders who grew up around this technology, not those who built it. Just as the TV industry was really built by those who watched it growing up in the 1950s, so it will be with the Internet industry.
Fabless – The chip industry used to lead consumer technology. Now it follows. Chips are increasingly about software, not just design software but the pure math that shows where future designs must go, and this trend will continue. Will 2012 be the year Intel (NASDAQ:INTC) separates its foundry from its design? Investors should hope so.
Robotics – Microsoft (NASDAQ:MSFT) gave computers eyes. Nuance (NASDAQ:NUAN) gave them ears and mouths. Electronic brains are just as good as positronic ones. Makers, mere hobbyists working with 3D printers and commodity parts, are giving them imagination. And government, through the military, is giving it all industrial scale. I've seen this movie before. Replace drones with Apollo, replace makers with homebrew computer people, replace eyes and ears with Intel and TI. A revolution is brewing, just under the surface. I call it AsimovLand, and I'll be following it closely.
Energy – The “mini-computer” era of alternative energy is starting to fade. Current technology doesn't provide the price-performance needed to replace oil and gas without subsidy. The next generation, however, will. This will be a year of transition, of venture capital, of new players, and of large enterprises eying those new players, looking for investments.
Today's Chinese “dumping” prices are the ceiling for the next generation's gear, which should start arriving late in the year. So while the action today is on those who can offer a channel for panel makers, investors should watch closely for those who can rightfully claim “crossover” – that with technology, installation efficiencies and better sales channels they can deliver power at grid parity or less. GE (NYSE:GE) wants to be the IBM of this space. The Apple and Microsoft have yet to be born.
These are just general trends. There are bound to be surprises. Watch closely, and be prepared to act on them with your dollars. A good tech investor will have a different portfolio next December than they do today.
Disclosure: I am long GOOG, IBM, GE, INTC.