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Nyquist Predictions For 2007

Prediction is an entertaining activity better suited for stimulating discussion than providing an absolute outlook on the future. Therefore, the bolder and more controversial, the better. Keep that in mind as you read and respond.

  • Web 2.0 as an investment theme peaks. Equities like Akamai (AKAM), Google (GOOG), suffer though their businesses continue to do well.
  • Google (GOOG) makes a really big move into hardware. This is accomplished by close partnership with Samsung or Sony (SNE) who finally realizes it needs a software partner to sell hardware.
  • The Third PC emerges, after the desktop and laptop in many homes, and its in the living room. This drives all sorts of new trends, from a focus on highly integrated chipsets to low power to new software companies.
  • Sales of gaming platforms explode though most aren’t used for gaming as the general public recognizes that game machines serve additional purposes, particularly as a Third PC. They become the must-have high def accessory. The major players at the end of 2007 are Microsoft, Sony, Nintendo, and Apple (AAPL).
  • AMD (AMD) successfully integrates ATI and positions itself as the leading provider of silicon for The Third PC, using the Nintendo Wii as the flag bearer. Markets agree.
  • High Def explodes. A perfect storm of cheap DVD hardware, content, and carriers finally make it accessible to mainstream consumers.  Service providers Verizon (VZ), Comcast (CMCSA), Cablevision (CVC), etc. figure out that High Def subscribers are profit centers and catalyze adoption.
  • Muni-Fi loses it’s luster. After a year of really good publicity and some isolated deployments the public forgets about Muni-Fi and it enters the “Trough of Disillusionment“. (Graphic Here)
  • Cisco (CSCO) attracts negative publicity. People realize it’s lack of innovation and monopolistic behavior makes it the Microsoft of the communication hardware business. Market share peaks as customers purposely enable competition, and Chinese suppliers like Huawei and 3Com (COMS) benefit.
  • The luster comes off US Cable and Telecom stocks as investors realize they have only begun to beat the living shit out of each other. Cable fares worse. Net Neutrality debates in the fall of 2006 turn into infrastructure subsidy debates by spring of 2008.
  • Net Neutrality debates move to the wireless domain, which is where they should have started in the first place. Anti-trust rumblings are heard about Verizon and AT&T/Cingular (T ) locking hardware and complicating the use of unlocked phones. One of the Four cellcos offers an ‘almost unlimited’ data plan for $9.99.
  • Tivo (TIVO) becomes increasingly irrelevant.
  • China becomes the next investment meme as retail investors pour money into the country. Every company rushes to present their China strategy. Any investment with China attached to it get a premium. The 2008 Beijing Olympics become the must-have ticket for the glitterati.
  • Medical Tech and Silicon Valley increasingly team up. Silicon medicine is the new buzzword.
  • Lots of M&A in the Networking Component and Equipment business (Full disclosure: Key Nyquist investment theme)

And finally, the most useless prediction of all – the markets. I’m going to waffle here and say what they won’t do – The S&P500 and Nasdaq will close +/- 5% from where they are today. Key word- VOLATILITY.

If I missed a particular theme, let me know and I might take a shot at it.

Discussion

Comments are disallowed for this post.

  1. The Wii will wipe out the XBox360 & PS3 this round, it won this Xmas already if you include the million or so Japanese sales.

    Bandwidth will suddenly become king again due to Video, I had no internet for 5 days after exceeded my limit. :(

    Apple, $50 iPod sized MP3 players from the likes of Aldi & Walmart will drive the price of their iPod down and Apple’s profits with it. iTunes DRM seen as a liability.

    AllofMp3 continues to grow, with albums prices around $2.50 to $5, takes the lead from iTunes before the end of the year. (No they were not killed when Visa stopped card clearance, you can’t keep a good thing down).

    Oil $80-90 a barrel by December, lots of phony alternative energy companies try to cash in. Bubble 3.0 is an alternative energy bubble, lots of numbers that don’t add up funded by overoptimism. Bubble 4.0 is US economy bubble, lots of numbers that don’t add up funded by overoptimism.

    Posted by I want a Wii | January 3, 2007, 12:48 PM
  2. I think the Wii will be handicapped due to a lack of HD capability, and it is currently undergoing a brief renaissance. The only thing unique to the Wii is the low price and the controller. Both can be duplicated.

    I will be wrong if this short term popularity drives the best SW developers to work on the console. Game companies are sick of dropping $10MM into development, if a simple Wii game hits a large installed base they may move that way to improve ROI.

    I think the winner will be the console that is best at NON gaming functions, or perhaps has no gaming at all. Manage digital photos, music, video. Today the Xbox 360 is best positioned though this is a ripe target for Apple. Nintendo is perfectly positioned to execute this now but the company lacks the DNA to pull it off. If Nintendo partnered with someone, things might change.

    Posted by Andrew Schmitt | January 3, 2007, 1:53 PM
  3. Time will tell, but I still think I’m right and can show it now.

    Nintendo DS vs Sony PSP? Winner is DSLite by a long chalk. (Nintendo dogs is damn fun). Sony moved to catch up, but Nintendo moved ahead changing the DS to the DSLite and dropping the price.

    http://digitalbattle.com/2006/12/08/npd-sales-figures-released/

    That was a clear example of Sony trying to make a multifunction device that played video disks, and Nintendo focusing on games and price.

    Also I’d point you to 2 extra things. Note that PS2 beat XBox360 in November and just launched Wii nearly beat it.

    Secondly, Wii may focus on games, but it’s powerful enough for a lot more:
    http://www.opera.com/products/devices/nintendo/
    http://wii.nintendo.com/wiimenu.jsp

    I’m confident I’ll be doing an ‘i told you so’ in Dec07.

    Posted by My wife wants to play with my wii | January 3, 2007, 3:10 PM
  4. I know the Nintendo/Opera connection, it is a very interesting move.

    I can see it going your way, but I can see it going others too. Like I said, the gaming console that ships the most units will be the one that is not gaming centric… if Nintendo ends up being that box then I would agree with you. The total market of people who use these consoles needs to be expanded, and the vendor that successfully does this will win. I don’t think Wii Sports will accomplish this alone.

    I think MSFT will introduce a $199 XBOX360 and a $299 XBOX360 with HD-DVD. It will be the must-have hardware for anyone with a new flat panel.

    Yahoo has an enormous presence in Japan, they are a natural partner for Nintendo. This is total speculation on my part but it would be a logical move.

    Posted by Andrew Schmitt | January 3, 2007, 3:24 PM
  5. I like your predictions (for the most part), and want to pile in with a few of my own…

    1) iPhone. Apple can change the game here in several ways, not the least of which include distribution / unlocking, user interface, and some new functionality. There is so much momentum behind Apple’s iPod, that I don’t see a significant threat getting mounted against their DRM except perhaps in column inches in Wired that will address insomnia for the general public

    2) slingbox. This will be very big in some ways that we may not even understand yet, and has the potential to bring wireless network usage neutrality to a head.
    BTW – I agree about your wireless network selection neutrality, but at this time it only applies to T-Mobile and AT&T Wireless, as Verizon and Sprint don’t do GSM. Slingbox may actually make Tivo relevant again – or kill it by integrating a DVR into the current platform.

    3) new location services. Helio, dash, Garmin, Google and others will serve up tasty new location dishes that go beyond locating the nearest sushi restaurant.

    Posted by Albert Lew | January 3, 2007, 5:25 PM
  6. 1. Virtualization — moves out from the data center and into the Central Office as Carriers (and Cablecos) realize operational complexities are killing their margins and finally ask for help.

    2. ‘Carrier XML’ — becomes a huge investment draw.

    3. Nortel — is the biggest beneficiary from the growing contra-Cisco enterprise sentiment (bravo, George Riedel).

    4. IPTV– will replace Muni-Fi as the most over-hyped business opportunity, accelerated by yet another super-hyped announcement by Google (as in Muni-Fi).

    5. Google — lands back on Earth dropping over 50% of its payload value followed by high-level management changes resulting in some real adult supervision (remember Yahoo’s landing?). The kids will be curfewed.

    Posted by Bill Baker | January 3, 2007, 6:57 PM
  7. Andrew, just want to bring to your attention, I played the Wii for a week from Christmas to New Year. It was fun but here’s a drawback no one’s talking about. After hours of playing Wii Sports boxing, my elbows were sore from the simulated jabs I was throwing. Later I played Baseball, practicing homerun swings. After 2 days (and hours), my right shoulder was sore from emulating the swing of a bat. This was also true for my girlfriend who complained that her right arm was sore. I had to stop playing the Wii because of the pain in my shoulder. I am 29 and go to the gym every week, so I don’t consider myself a potato couch. If you do not know what I’m talking about or haven’t played the Wii yet, I suggest you try it and do some homerun swings. The thing about the Wii is, in order to get a harder punch in boxing or a faster swing of the bat, you need to punch harder and swing faster in real life. This puts a lot of stress on the muscles especially when I am swinging in air. This could be a serious problem if a large amount of players injure themselves playing the Wii.

    Posted by kyelrm | January 5, 2007, 4:45 PM
  8. I feel all 3 next generation gaming systems will do well. Right now on my website, which has only been open less then a month, Xbox 360 games sell the best, followed by Ps3, and then Wii.

    I am hoping 2007 determines a victor in the high def dvd platforms. The industry really screwed up by creating another beta-vhs war. I feel most people won’t invest till they know which format will prevail. Even standard dvd sales will drop, because people don’t want to buy the standard dvd now, and later on the high def dvd.

    Andrew did you finally get a high def tv? I think I read you were looking at some back in Nov. Drop me an email and let me know please. This is mrlucky form the txcc board.

    Posted by mrlucky200abc | January 5, 2007, 4:50 PM
  9. Great predictions.
    I have a Wii, PS3, and XBOX360. Long story but…
    Looking back on the last 3 weeks, The Wii was used all the time while the PS3 and Xbox360 just sat there collecting dust.
    I even got addicted to the Wii. Elebits, sports, and Trauma Center. I think Nintendo really has got Sony’s number here.

    China 2007 and 2008 –
    We’ve alrady seen years of investments and it’s been the next big thing for 20-30 years already. I predict late 2007 or 2008 to be a “bubble burst” for China. I mean in terms of inbound investments.
    China is already outsourcing to Vietnam and Africa?
    I spent many years running a company in China, and they love our money.

    They call it “dumb money”. Millions of dollars from clueless greedy American investors. Ever wonder why there are so many golf courses and $200k cars driving around in China?

    Posted by Ed Draker | January 8, 2007, 12:47 PM
  10. Um, Andrew, hasn’t China already hit the mainstream? Have you seen a chart of FXI lately? LFC? They’re moonshots.

    My sense is that Chinese markets may have to sell off in the near term. The government has recently been withdrawing liquidity.

    Posted by Scott Raynovich | January 9, 2007, 9:25 PM
  11. My comment is more about middle America. The China boom has not gone mainstream yet. The public still perceives China as bicycle-riding masses wearing Mao tunics. They have no concept of the industry underway. When Jim Cramer is thumping companies based on how they are positioned in China, that will be the endpoint. China will become ‘cool’. Mao tunics will be in fashion. That sort of nonsense.

    I sold my FXI in the early summer.

    Ultimately China will be a powerhouse though it feels like we are at a local maximum. Then again, I said that last year.

    Posted by Andrew Schmitt | January 10, 2007, 1:10 AM
  12. Here’s my hunches:
    1)Video on cellphones bombs, just too hard on the eyes

    2)In home powerline for video distribution is the upside surprise (just need to hammer down those prices – chicken vs egg situation)

    3)Fixed wireless backhaul is the next Akamai “nut & bolts” communication sleeper. (Although AKAM wasn’t a sleeper when it rocketed to $350 at it’s IPO. It’s been a wonderful success and has recovered to $50 (from 75 cents low)

    Posted by jc | January 23, 2007, 4:19 PM
  13. Scott and Andrew,
    China is just beginning its assent; no doubt here will be some bumps along the way but nothing major.

    What really amazes me with China is the breadth of different technologies where they are quickly becomes world leaders. This is akin to the way that Japan-inc took control of the Consumer Audio – Entertainment space in the 80’s and wiped out the US and European competitors in short order, the same thing is taking place in China today only difference is that they are successfully attacking on many fronts. I’ve been living in China for over 3 years now and I’m still blown away with the pace of change, no doubt they are going to have to come to terms with the underlying inflation problem and finally mint something larger than a 100RMB note.

    The more interesting problem is, what will happen when China’s technology capabilities start to displace companies like CSCO and IBM? I’d predict a lot more pain for the tech sector and one heck of a political fight.

    Robert

    Posted by Robert | January 24, 2007, 9:08 AM
  14. I agree that we’re finally going to be seeing some significant consolidation in the networking components space this year. Who do you see as the engines of M&A in the space — big companies (a la the on again/off again/on again/looks like its off again Avanex/Bookham pairing) or mid-level players such as NeoPhotonics and MRV/LuminentOIC who hope to position themselves for an IPO?

    Posted by Stephen Hardy | February 6, 2007, 4:50 PM
  15. I think you’ll see it in the Semi space, perhaps the components space.

    As for optical components, something is going to happen with Avago and/or Intel. It doesn’t make sense for those units to remain independent.

    I really believe Finisar is doing all the right things in terms of consolidation.

    As for Bookham and Avanex… maybe they are bought. Merging the two together makes little sense. One would need to be the victim and the other the host.

    Posted by Andrew Schmitt | February 6, 2007, 5:04 PM
  16. Best plays on Fixed wireless backhaul? Any thoughts?

    Posted by J-MAC | March 28, 2007, 6:06 AM
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