A view on the I.T. sector's Big Data landscape
Progress in information technology is transformative. Every year brings faster processing speeds, greater storage capacity, bigger data sets, and more advanced software. Data growth continues to surge as the “Internet of Things” is generating a massive amount of data. According to IDC, digital information volume is projected to expand by 14-fold (or with a CAGR of 39%) to 40 Zettabytes from 2012 through 2020, representing a 50-fold growth from the beginning of 2010. Additionally, IDC estimates the gap between the amount of digital information created and digital storage available will continue to widen over the next decade. This provides the storage industry with an opportunity for growth in the coming years. Moreover, the need for more efficient consumption of ‘big data’ has given rise to ‘cloud computing’ and an increasing amount of I.T. dollars are moving towards software such as applications and analytics. From an investment perspective, we believe storage leader EMC and semiconductor leader Intel have the necessary competitive advantages in order to compete in the I.T. sector’s evolving big data landscape.
The challenge for I.T. managers is focused around the sheer volume, variety and velocity of data generation. The rise of ‘unstructured’ data (e.g. emails, photos, videos, business documents) is a particular challenge. Thus, companies are utilizing machine learning-based analytics and software dollars are moving from traditional infrastructure to applications. This shift from hardware to software has been impacting legacy systems vendors such as IBM, Oracle, HP and Dell. On the networking front, Cisco has also been facing challenges from software defined networks (SDNs). In storage, EMC has been gaining market share vs. legacy storage and server OEMs (original equipment manufacturers). EMC has the broadest storage portfolio of any vendor, with emerging storage technologies such as Network-Attached Storage (NAS) and flash-based storage architecture. Moreover, through its stakes in VMware (80%) and Pivotal (62%), EMC offers competitive technologies i.e. server virtualization (cloud storage) and PaaS (platform-as-a-service) respectively. PaaS is a relatively young market that provides developers a centralized, self-service platform than can manage the development and deployment of applications on a common architecture.
As we can see below, the advent of ‘mobility’, ‘connectivity’, 3G/4G mobile technologies and faster internet speeds , have contributed to an ongoing increase in computing and smartphone devices. Moreover, the cost of computing is decreasing, thus enabling the broader consumerization of I.T. and increased device adoption by emerging markets. On the enterprise side, we see significant scope for small and mid-sized businesses to become heavier users of I.T. products and I.T. as a service. Furthermore, cloud computing is reducing I.T. capital expenditures and I.T. is consumed as a service, while enabling access to significant economies of scale.
As demand for low-power, higher performance and cheaper chips increases, we view Intel as ideally positioned. After being late in the smartphone/tablet race, Intel has committed $60bn in the past 3 years in an attempt to perpetuate its manufacturing leadership and gain market share in sub-$500 tablets, 2-in-1 PC/tablets (ultrabooks) and handsets. Amidst a declining PC market, Intel has been leading the design of new form factors that enable the convergence between notebooks and tablets. A new generation of chips is ready to contribute to Intel’s unit growth and also sustain gross margins i.e. due to lower cost chips. Intel is one of the few chip makers with the necessary critical mass to keep benefiting from Moore’s Law i.e. doubling chip (MPU) density every 18 months. In handsets in particular, as the mobile market becomes commoditized (largely reflecting emerging market growth), price and performance are required to win. Thus, we expect Intel’s manufacturing lead and its Atom-based mobile processors to help Intel gain market share vs. ARM chips in both the handset and tablet market.
In conclusion, the era of big data is upon us. Expanding IT capabilities are enabling multiple ways of connecting, sharing, collaborating, and doing business. We view competitive industry leaders such as EMC and Intel as well positioned to benefit from the I.T. industry’s big data evolution.
Christos Charalambous CFA
Senior Strategist
christos.charalambous@edgewealth.com
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s, or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Edge Wealth Management, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.