Because the big telcos have finally bitten the cloud bullet, their industry, and tech generally, has been primed for its next recovery.
At the OpenStack Summit in Austin this week, the message from AT&T (NYSE:T) and Verizon (NYSE:VZ) was clear. The phone network as we knew it is dead. It has been replaced by a cloud fabric linking data centers with client devices.
A few of the old data center suppliers seem to have survived the transition. Dell and Hewlett Packard Enterprise (NYSE:HPE), which supplied old-style data centers a decade ago, are still players today, thanks to the telcos. Intel (NASDAQ:INTC) remains a primary supplier as well. But the companies that once supplied high-end switching gear that distinguished between "telco" and "computer networking" markets, companies like Nokia (NYSE:NOK) unit Alcatel-Lucent, and Siemens (OTCPK:SIEGY), are having to find niches.
The carrier wins are also big for Red Hat (NYSE:RHT), the open source software company, which over the last few years seemed to be watching Amazon.com (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) run away with the cloud market based on proprietary "public cloud" technology, as the "hybrid" cloud market it hoped to prosper on was slow to develop. The carrier commitment gave Red Hat a firm base, and the mainstream of corporate technology is now firmly in OpenStack's corner.
Meanwhile, last-mile gigabit networks continue to snake their way into a few lucky markets, further centralizing tech-related industries among a few major centers. On my own street in Atlanta, where 20 years ago BellSouth had a single unshielded wire running on the phone poles, this year I have seen two fiber runs laid. Comcast (NASDAQ:CMCSA) joined Verizon Wireless to run fiber under the sidewalk. AT&T is running fiber along phone poles. The neighbors are all excited about sightings of Google, which also plans an overbuild. Cities without such gigabit-speed connections could be left by the wayside over the next few years, as could suburbs within those cities.
The cloud-and-device paradigm that kicked off in 2007, with the launch of the iPhone (NASDAQ:AAPL), following Amazon Web Services, is now the technology mainstream. Computer networking and telecommunications are now one thing. Software development times are now compressed from years to weeks, as industry-collapsing apps can be deployed in clouds by small teams.
The short-term result looks like retrenchment. The cost of becoming a mainstream cloud provider remains about $1 billion in capital expenditure each quarter. Few companies have the financial wherewithal to play the new game. But all companies, including start-ups, have the financial wherewithal to compete within the game to reduce market friction and to expand into bot interfaces that compress hierarchies still further.
Investors have a unique opportunity, right now, to take bets on who will win market share, and who might build new solutions within the new computing environment. It's going to be a very exciting half decade.
Disclosure: I am/we are long AAPL, MSFT, AMZN, GOOGL, INTC.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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