Where Tech Could Bubble Next Year
By Jim Kerstetter
08/23/04 8:49 AM PT
Before you write off tech as downright dreary, look around and you can spot pockets of activity that could brighten the outlook for 2005. Take video delivered to consumers over the Internet. While digital music is already a thriving business, Net-based video services that can complete the notion of a digital home are just now taking baby steps into the mainstream.
It seems techdome offers little to get excited about these days. Microsoft's (Nasdaq: MSFT) (MSFT) next Windows operating system isn't due until sometime in 2006. The next generation of video-game boxes won't be out until late 2005, at the earliest. And even the once-reliable corporate software industry dominated by the likes of Oracle (Nasdaq: ORCL) (ORCL) is stuck in a consolidation mode for the first time since, well, the corporate software industry began.
Welcome to the dog days of tech. First came a boom, then a bust, the inkling of a boom, and now it's stuck in something like purgatory. While the technology industry is clearly growing again, it's hardly the 9 percent annual rate people in the industry grew to expect, even before the dot-com boom.
Some analysts believe that, due to lackluster corporate spending and few eye-catching new ideas, the industry could be stuck in 3 percent to 5 percent growth for the foreseeable future. "The consumer is doing his job" by buying tech gear, says Bryan Lewis, a vice-president at market researcher Gartner , based in Stamford, Conn. "But corporate buyers are finding ways to hold off on their spending."
Before you write off tech as downright dreary, look around and you can spot pockets of activity that could brighten the outlook for 2005. Take video delivered to consumers over the Internet. While digital music is already a thriving business, Net-based video services that can complete the notion of a digital home are just now taking baby steps into the mainstream.
"There was a lot of talk about this stuff before it happened," says Roger Kay, vice-president for client computing research at market researcher IDC. "So people can be forgiven for thinking it already did happen."
Three years ago, Apple (Nasdaq: AAPL) Computer (AAPL) jumped headfirst into the digital music business with the iPod digital music player, but it shied away from the video market. That was telling. The tech infrastructure required to send video over the Net is far more heavy-duty and is only just now being built. The nation's four largest telecom providers have all announced plans to beef up their infrastructures to improve Internet video services. "A lot of fundamental things still have to be nourished for video," says Kay. "But that is starting to happen."
Fun at Home
In large part, because of consumer interest in multimedia, PC sales are still expected to grow better than 10 percent this year, says Kay. Next year could see a point or two less but still far healthier than the negative territory of three years ago.
Certainly, execs at Microsoft see video streaming as a growth market. This fall, the Colossus of Redmond will release the third generation of its Windows XP Media Center software, a version of the Windows operating system that turns consumer PCs into home-entertainment hubs with computer screens doubling as TV monitors. The PCs themselves can store and record programming, much like a popular TiVo (Nasdaq: TIVO) (TIVO) digital video-recording device. They also simplify listening to digital music collections and editing and viewing digital photo albums.
But it's not just the tech giants getting on board. Zen, a $499 portable digital-video player from Creative Technology (CREAF) could be a harbinger of things to come in digital entertainment . Creative was one of the first to develop an MP3 digital music player with a hard drive -- a market dominated today by Apple's iPod line.
'A Breather'?
Outside of the digital home, sales of various wireless technologies are still going strong. Cell-phone sales will grow 22 percent this year, to 651.5 million units, according to InStat/MDR. "This market remains incredible. People seem to be replacing their cell phones at a rapid clip, no doubt because carriers give them away at low cost to get customers," says Allen Nogee, a principal analyst at the Scottsdale (Ariz.) research firm.
In 2005, sales could slow, however, with growth at about 4 percent, to 677 million units. "A breather wouldn't surprise me at some point," adds Neil Strother, a senior analyst at Instat/MDR. "How long can you keep growing at 22 percent?"
Combined, the wireless and home-entertainment market could boost semiconductor sales 27.4 percent, to $226.1 million this year, according to an Aug. 19 forecast by Gartner. But don't get too comfortable. Because of bad earnings news from a host of tech bellwethers in the second quarter, Gartner lowered its growth forecast for chips next year, from 13.8 percent to 9.3 percent.
Going Digital
And since so much chipmaking capacity is coming on line, pricing pressure could shrink the market by 2.6 percent in 2006. "We'll get into a boom-or-bust cycle once again," says Lewis. "No matter how well [chip] companies plan, at some point they get overcapacity."
But not for long. Computer chips, software, and other traditional tech devices are finding their way into nontraditional tech spots, like cars and medical devices -- so much so that chip manufacturers, usually considered the harbinger of success for the rest of tech, are expected to see sales rise 10 percent by 2007 and an additional 15 percent in 2008.
Certainly, there's a lot to yawn about in tech at the moment. But boring? Never.
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