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Nyquist 2007 Predictions Revisited

It’s time to take a look back at 2007 and see how our predictions fared. (See “Nyquist Predictions for 2007“)

  • Web 2.0 as an investment theme peaks. We were right on Akamai but wrong on Google. Cisco jumped on the Web 2.0 bandwagon in 2007, with John Chambers freely using the phrase. We feel this is a contrarian indicator. As 2008 unfolds we’ll see if 2007 was the peak.
  • Google makes a really big move into hardware. Android, Google’s effort to develop a mobile OS, is this effort. Google chose to partner with many hardware folks – HTC being a notable one we should have seen.
  • Sales of gaming platforms explode. The Wii was a hit and the PS3 started selling with the proper price cuts. While explode wasn’t the right word there is plenty of momentum to complete the trend in 2008 of the gaming machine emerging as one variation of the Third PC.
  • AMD successfully integrates ATI. Whoops. AMD has done nothing to capitalize on this horizontal integration. ATI has been decimated in it’s technical competition with NVidia.
  • High Def explodes. It is hard to find a non-HDTV in stores anymore. Comcast, Verizon and the satellite providers are all trying to one-up each other with more HD content. The high-def DVD wars wage on though the cost of players dropped more than 50% in 2007, and for $200 each consumers are starting to take sides. 
  • Muni-Fi loses it’s luster. Nailed this one. Earthlink, poster child of Muni-FI, exited the business. Favorite quote from Anthony Townsend: “Muni-Fi is the Monorail for the decade“.
  • Cisco attracts negative publicity. Not there yet, though one has to wonder with all of the sound and light emerging from the Cisco Marketing Investor Relations machine why the stock ended the year flat. 
  • The luster comes off US Cable and Telecom stocks. Home run here on the Cable sector- they entered 2007 as the favorite sons and exited at 5-year lows. The only exceptions were AT&T and Verizon, which found strength from the only consumer Telco business that matters anymore – Wireless. Embarq and Qwest both suffered.
  • Net Neutrality debates move to the wireless domain. Didn’t really happen, may not happen now that carriers see the additional revenue from data growth. The iPhone is having a profound impact on consumer perceptions of unlocked phones.
  • Tivo becomes increasingly irrelevant. Easy one, but still right.
  • China becomes the next investment meme. Jackpot. If the wheels come off, it won’t be ’till after the Olympics.
  • Medical Tech and Silicon Valley increasingly team up. This is happening with medical startups proliferating in the Valley, particularly around Genomes. Check out 23andMe. This trend builds in 2008.
  • Lots of M&A in the Networking Component and Equipment business. Hard to measure ‘Lots’ but it didn’t feel like there was ‘Lots’ – particularly after the big events of 2006; Alcatel/Lucent, Nokia/Siemens, Ericsson/Redback/Marconi. Meaningful M&A in the Component sector was absent. This prediction appears again for 2008, albeit revised.

It was terrible year for the small/mid-cap Networking sector, one in which the best decisions we made were the disasters averted for clients – MRV, Opnext, Level3, Mindspeed, Conexant – the list goes on.

Short positions in the Cable group worked and a massive short position in Nu Horizons worked. Our long position in Abovenet worked well in a market where it’s peers (LVLT, XOHO) were decimated. We successfully traded and timed Vitesse Semiconductor.

Outside of this, positions in just about any company in the sector were decimated. Close to home were Finisar (down 55%) and Adtran (even for year, but down 30% from 2007 peak) and Adva (down 60%).

One market prediction we got right was more volatility. It should be noted that as rough as the year seemed, volatility was in line with historical averages. (see here).

More on what is coming in 2008 over the next few days.

Discussion

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  1. “The Wii will wipe out the XBox360 & PS3 this round”
    Wiiiiiiiiiii….

    “Bandwidth will suddenly become king again due to Video,” Not sure how to measure this but still believe it happened.

    “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.”
    The new iPods came out mid year and blew away my prediction, the cheapest of those new players got to 50 EUROS (not $) from Aldi. I’m counting that as a fail.

    “iTunes DRM seen as a liability.”
    Yep, DRM is dead, Sony just dropped it. Walmart music chart shows it all:
    http://musicdownloads.walmart.com/catalog/servlet/TopDownloadsServlet
    DRM free MP3 dominate the chart, cost more and sell more units.

    “AllofMp3 continues to grow”
    Nope, still mired in politics, and Amazon DRM free store means it never will now.

    “Oil $80-90 a barrel by December”
    $95 by December sigh, even worse than I imagined.

    “lots of phony alternative energy companies try to cash in.”
    Yep, seen loads of them, but that’s a no brainer given the oil price.

    “Bubble 4.0 is US economy bubble, lots of numbers that don’t add up funded by overoptimism.”

    Subprime mortgages don’t count as a bubble popping for me, just a minor release of gas that delays the pop. What is the real rate of US Inflation if we take out the hedonics trickery and put back in food and mortgages and energy?

    Posted by Smurf | January 5, 2008, 10:12 AM
  2. Think neutrality debates in the wireless domain will happen. Wireless operators have started investing in traffic shaping features and are just about starting to turn them on hence too early to get a debate about it. For sure mobile operators want to make revenue from data growth but not from any data growth. With flat fee and 3G it was quite evident that the P2P community would discover the mobile networks. But traffic is more expensive and rare in the mobile world hence the wireless operators will shape the traffic and a consequent debate will heat up – perhaps not in 2008 but definitely in 2009.

    Posted by SB | January 7, 2008, 7:43 AM