Today's Innovators Could Become Tomorrow's Takeover Candidates
stockhouse.com
March 9th, 1999
StockHouse News Desk
EMERGING SECTORS: STOCKHOUSE SPECIAL REPORT PART THREE
Part 3
Today's Innovators Could Become Tomorrow's Takeover Candidates
Miami, Fla., March 9th /SHfn /-- The experts told us wireless data messaging would never
happen - that it was little more than a lab experiment. It has happened and is evidenced by the
introduction of BlackBerry, a wireless email solution offered by Research in Motion
[NASDAQ - RIMM; Toronto - RIM]. The BlackBerry is the next generation jump from the
3Com [NASDAQ - COMS] Palm Pilot electronic organizer. There are other companies
pursuing similar venues to capitalize upon the astonishing growth of the Internet and the
convergence of the computer and telecommunications industries. Those innovators should
become the hot new Internet companies within the next 24 months. Just as Yahoo! [NASDAQ
- YHOO] and Amazon.com [NASDAQ - AMZN] rocked the brick-and-mortar world,
innovators in this new "communication" conduit will transform the Internet - from plugged-in to
unplugged.
By next year, the Electronic Messaging Association anticipates that nearly 110 million people
will be using email. In the Millennium Year, these Internet users are expected to receive more
than 7 trillion messages throughout the year. More than 30 million used email in the past 24
hours, 59% of adults with Internet access send or receive email every day, 30% regularly email
each week, 57% of American business executives rely on email, 82% of Internet users email
from work, 91% have an account at home, and email is the most popular Internet application
aside from Internet research.
Because of these overwhelming statistics, initial attempts to provide a "wireless environment" will
focus on wireless data exchange via the Internet, also known as wireless email. According to
The Strategis Group, the paltry number of wireless email users is expected to jump to 15.6
million by 2001. The example of Research in Motion's BlackBerry is a crude, but essential, first
step toward mass-marketing a wireless data device, beyond limited one-way data reception.
Andrew Seybold of Outlook prognosticated that there would be major developments that might
greatly expand the consumer demand for wireless data messaging. It is hard to disagree with
industry experts who expect the market is going to explode with growth over the next three to
four years, with a profusion of computer/telecommunication appliances to choose from.
AN INDUSTRY REVIVAL
According to Arizona-based Semico Research Corporation, annual sales of handheld personal
computers, palm top computers and smart phones is expected to reach $7.5 billion by 2003.
You have probably already seen such data transmission-capable devices used by your overnight
courier service, such as Federal Express or UPS. However, PalmPilot fanatics may desire
something deeper than a downloaded stock quote or the latest headline news item, if there were
an upgraded version of what couriers provide.
The consumer preparation toward smaller, smarter devices is already in gear. Research by
International Data Corporation (IDC) indicates U.S. unit shipments of information appliances,
including handheld computers, game machines, video telephones and Internet-connected
televisions, to eclipse sales of consumer desktop personal computers by 2001. This matches
what analysts have recently been forecasting - the rate of personal computer sales are slowing.
According to this same report, the hottest appliances will be "Internet-smart, handheld devices,"
like Microsoft's Window CE software. By 2002, IDC forecasts these handheld devices "to be
the most popular smart appliance." IDC also predicted that information appliances would grow
76% annually through 2002, with annual shipments reaching 55.7 million units and annual global
sales of $15 billion.
With a rapidly expanding information device market, we should expect more aggressive strides
made by the global leaders in consumer electronics, such as Matsushita Electric [NYSE -
MC], Sony Corporation [NYSE - SNE] and Royal Philips Electronics [NYSE - PHG] to
produce the new smart devices. Sony owns about 5% of General Magic [NASDAQ -
GMGC], with Microsoft owning nearly 10% of the same company. General Magic, Inc.
produces the Portico product, which is a virtual assistant that can forward your phone calls and
get stock quotes and newswire stories. The product also integrates voice mail, email, address
book, and calendar functions with Internet access over a touch-tone or cellular phone using
magicTALK, GMGC's language voice user interface. Philips has attempted buying into
chipmaker VLSI Technology [NASDAQ - VLSI] to keep from losing further ground in the
wireless data industry. VLSI co-developed with Ericsson [NASDAQ - ERICY] the first
Bluetooth baseband processor, which should become available later this year. Ericsson buys
about 30% of the cellular phone integrated circuits that VLSI sells.
The major development for the wireless data industry is the alleged release of Bluetooth
products in 1999. Bluetooth's initiatives involve disconnecting most computer and household
appliances from their plugs and replacing them on a universal, low-cost radio link. Over 500
technology adopters are committed to providing Bluetooth-based products, possibly establishing
Bluetooth as the universal digital communications standard for most consumer electronic
products. Will the public buy it? No one knows for sure, but it should make strong inroads in
establishing the wireless data "connection" in the consumer's mind.
The Bluetooth initiative may help explain the rush of acquisitions recently made by Alcatel
[NYSE - ALA] and Siemens AG [OTC - SMAWY (ADR)]. Those acquired were data
communications innovators, again strengthening the argument of a convergence between telecom
and computer sectors.
Over the course of the next 12 to 24 months, there should be a goldrush-style descent into every
aspect of this new mega sector. All of the computer industry giants will either participate or face
faltering sales. For example, Toshiba [OTC - TOSBF] might emerge as a major player in the
wireless/computer convergent (WCC) industry. [COMS buyout to get the Palm?...] It is already realigning its operations and
requires a telecom partner. Sharp Corporation [OTC - SHCAY] is now concentrating on data
and voice communications products to boost revenue, but can it make the jump before
Matsushita Electric leaps ahead?
The Europeans are likely to remain the innovators, ahead of the Asians and North Americans,
between now and 2002, especially after the aggressive behavior witnessed by Alcatel, Philips
and Siemens in the past two weeks. The Symbian venture has emerged as the leading pioneer in
this field - powerful enough to strike fear into the heart of Microsoft.
BATTLE LINES ARE DRAWN
Microsoft recognized the likelihood it would miss the WCC leadership role in much the same
way Netscape emerged as the leading Internet browser. Its hastily launched response -
WirelessKnowledge (the Microsoft joint venture with Qualcomm) - has fallen behind its initial
launch targets and might be delayed until later this year. While it may promise a superiority to
Research in Motion's BlackBerry unit, the WirelessKnowledge website
(www.wirelessknowledge.com) fails to offer any substantial evidence that it has progressed
beyond the blueprint stage.
By contrast, the Symbian venture, led by Psion PLC [OTC - PSIOF] announced in late
February the immediate availability of an email synchronization utility, eSync 4.1, for its handheld
computer. The program allows for synchronizing off-line email with Microsoft Outlook98 and
Novell Group Wise 5 without the need for Internet access, a modem or a telephone link.
Despite its deep-pocket partners - Ericsson, Motorola, Nokia and Oracle - the Symbian
venture has not advanced to full wireless email capability.
One company that has proven wireless email capabilities, on the other end of the spectrum
where Research in Motion resides, is Infowave Software [Vancouver - IWM]. While
Research in Motion is likely to cater to the consumer market, Infowave marches into the
corporate IT markets at a consistent and rapid pace. The company has held paid trials with
Fortune 500 companies that are among the leaders in their respective industries. In a
StockHouse/BizSoup interview on Monday, Infowave's CFO Todd Carter projected the
company would meet its target of $2 million sales in 1999 and become profitable the next year.
Infowave dominates the printer-enabling software market for Apple Computer products. On the
coattail of the iMac success story, Infowave recently turned a quarterly profit atop record
revenues. From this cash flow, Infowave can subsidize its penetration of the wireless data
market without the stock dilution of secondary financings.
Andrew Seybold noted in an earlier StockHouse interview that neither Infowave nor Research in
Motion would survive the next five years - probably bought by a senior company. From what
has recently occurred in the WCC sector, his forecast merits observing. A credulous analysis
would partner Research in Motion with Ericsson, Nokia or Motorola, but that would be highly
unlikely to occur until after the release of WirelessKnowledge products. The market would have
to gauge whether taking over Research in Motion would be worth the expense against the
formidable Microsoft/Qualcomm.
Infowave's Todd Carter denied that Infowave was positioned to yet become a takeover
candidate. However, after the company has made strong inroads into the Fortune 500 market,
the company's Office Enabler series might become a good match for a Baby Bell
telecommunications division. Both Canadian companies are the respective leaders on each end
of the WCC spectrum of devices. BlackBerry can be worn on your belt and is more adaptable
for the consultant or salesman at the lower end of the corporate market. Infowave's Office
Enabler is pure white-shirt-and-suit for top and middle-management that prefer portable
computer devices, such as notebook computers.
None of the advances made by the WCC sector would have been made possible had not
Microsoft Exchange achieved substantial growth against Lotus Notes in 1998. Flagship Lotus
accounts, such as Amoco, Compaq, Dell, Hewlett-Packard, Intel, Johnson & Johnson, Nike,
Shell, Texaco, Ford Motor Company and others, switched to Microsoft's messaging
technology. It is the technology of choice for the new brand of WCC providers and should
enable their growth as this new industry gains popularity.
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