Biz News--redherring.com: "Upstart Upstage + Wireless Watch"
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Wireless Watch: The once and future king
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>>> Personal Capital: Upstart upstage
You could not have created a more gloomy, pessimistic environment for technology stocks than has been painted in the last week. So is this the end of the majestic bull market for technology stocks -- one that has lasted for more than a decade now -- or the beginning of something entirely new?
I think it's the beginning of something entirely new.
You've heard the news a thousand times already: Intel (Nasdaq: INTC) has warned about missing its quarter. Cisco Systems (Nasdaq: CSCO) is in a prolonged slump, and there are rumors that it may miss a quarter. Microsoft (Nasdaq: MSFT) seems to trade on nothing but Department of Justice (DOJ) news over the past year. Shocking!
But the market isn't nearly bad as it looks -- it's just shifted from a set of older, larger-cap players to a set of rising stars. The stock movements of these old-line players largely influence the value of the Nasdaq Composite. But that doesn't tell the whole story.
What about stocks like BEA Systems (Nasdaq: BEAS), EMC (NYSE: EMC), Research in Motion (Nasdaq: RIMM), Cacheflow (Nasdaq: CFLO), Redback Networks (Nasdaq: RBAK), and Siebel Systems (Nasdaq: SEBL)? They are far from dead -- in fact they look damn healthy.
OUT WITH THE OLD
I would categorize this technology market as anxious -- anxious for something new. Anything new. Fiber-optics components and networking are new, and that's why people are excited about them. Wireless networks are new, and that's exciting. High-end networked storage is relatively new. Commodity-level PC chips are not new, so why should the market be excited about it?
Let's face it, the PC and enterprise computing are boring.
If we take a really close look at the true progress in technology in the last two years and think about its implications, the reaction of such stocks makes sense. The action, after all, has moved elsewhere -- into new markets where Intel and Cisco and Microsoft aren't the dominant players.
The investment boom in communications equipment has shifted away from enterprise networks, where the ubiquity of Ethernet has driven most switching and access gear down to commodity levels and is now moving toward metropolitan access, wireless access, and global optical backbone networks. Hence the fall in the share price of Cisco, which dominates the enterprise market, and the rise of companies such as Ciena (Nasdaq: CIEN), Nortel Networks (NYSE: NT), and Sycamore Networks (Nasdaq: SCMR), which have focused on the global telecom market. The market is gloomy about certain stocks and excited about others for a reason -- it's smart!
Why get depressed about it? Scan the crowd, and look for the rising stars. They are there. Fall always gets depressing on Wall Street. But it's the perfect time to start thinking about spring. <<<
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>>> Wireless Watch: The once and future king
It's hard to believe that the young wireless industry already is at a crossroads. But it's true. Suffering under the weight of its own fantastic hype and bloated expectations, a string of disappointments have hit the fledgling industry, not the least of which is the lingering problems cell-phone handset makers are having unloading their products.
Wireless sector experiences interference
Add to Sprint PCS (NYSE: PCS)'s difficulty in signing up wireless customers the outrageous auction prices wireless carriers are paying for spectrum these days and the bleak stock picture wireless companies are enduring, and, well, you see where I'm headed with this.
Sprint issues warning, anticipates 4 percent revenue growth
Germany gets greedy with 3Gs
So who is going to save us from these wireless doldrums? Palm (Nasdaq: PALM), of course.
That may be an oversimplification of a much more complicated problem, but essentially, the functionality that the Palm OS will bring to the wireless market will jump-start the industry -- from service providers to handset manufacturers. Everyone will benefit from Palm. (It's no coincidence that of all the handset/handheld/wireless stocks, Palm's is the one that is currently on a tear, up 180 percent since May.)
READING THE PALM
Here's how this will play out. What has come to be known as the wireless Internet -- which is really just the same old Internet accessed on anything wireless -- has the potential to sell new handsets, new services, and a whole new round of hype. But if you look at the deals that were made this week and last, like Palm and Motorola (NYSE: MOT) teaming up to make a line of smart phones and Handspring (Nasdaq: HAND) announcing the new Visorphone (which uses the Palm OS), you start to get a sense of the convergence that will drive growth in the sector for years to come. Hmmm ... maybe those auction prices weren't so out of whack after all.
Palm, Motorola to team on cell phone
Handspring hopes Visorphone is the next "Killer Application" (Wall Street Journal Interactive, subscription required)
With these combo daytimer/Net surfer/cell phone doohickeys on the way by early 2002, carriers already are starting to turn their eyes to the additional revenue potential in wireless Web services. Take, for instance, the news this week of Lucent Technologies (NYSE: LU) and MapInfo (Nasdaq: MAPS) developing location-based functionality for mobile devices.
Lucent and MapInfo develop service (New York Times, subscription required)
Offering commoditized voice communications starts to sound a little more like "ka-ching" when you add on restaurant locating, emergency services, and the like.
TRIAGE TIME
The kinds of devices described above will drive the next wave of growth in wireless, but in the meantime, something has to be done to stop the bleeding. There are two main problems in the industry right now. The first is that competition for customer sign-ups is fierce and defection rates are high, especially when service contracts come up for renewal and wily customers start shopping around. This puts the pinch on the wireless carriers. The second problem is that customers have little incentive to upgrade their phones, contributing to inventory problems and poor revenue growth in handsets. Verizon Communications (NYSE: VZ) may have found the interim solution to both problems.
Verizon's "New Every Two" plan dangles a tempting carrot in front of wireless subscribers in an attempt to prevent defection.
Verizon unveils upgrade plan for cellular-phone customers (Wall Street Journal Interactive, subscription required)
At the end of two years, customers can upgrade their cell phone for free. Sounds great, but who wants to wait two years to get a new phone, when the one I bought two months ago is already out of date? At this rate of development, in two years there could be an entirely new form of communication, rendering the cell phones obsolete. Verizon's got the right idea, but probably should shorten the contract length to a year.
So things don't look so good in the wireless market right now, and it probably won't be until late next year before things really start to take off again with the advent of the wireless Internet. But this is a temporary phenomenon. People will talk about the coming of 3G and the wireless Internet a lot over the next year and a half, trying desperately to put a good spin on an ugly situation. And though many of them won't even know what they're talking about, they'll be right nonetheless. <<< |
