DailyFinance.comhttp://www.dailyfinance.comDailyFinance.comhttp://o.aolcdn.com/os/df/2013/img/2-dailyfinance_logo_m.pngDailyFinance.comhttp://www.dailyfinance.comen-usCopyright 2013 Weblogs, Inc. The contents of this feed are available for non-commercial use only.Blogsmith http://www.blogsmith.com/11 Smart Places to Invest Your Money Nowhttp://www.dailyfinance.com/2011/02/17/11-smart-places-to-invest-your-money-now/http://www.dailyfinance.com/2011/02/17/11-smart-places-to-invest-your-money-now/http://www.dailyfinance.com/2011/02/17/11-smart-places-to-invest-your-money-now/#commentsFiled under: , , , , , ,

Smart Places to Invest Your Money NowThe financial markets and the economy are entering new territory, creating new risks and opportunities for investors.

America's slow recovery is gaining momentum, unemployment is declining and there are even signs that inflation will start to pick up. And while it will be years before before consumers and the federal government fully repair their broken balance sheets, housing prices recover and the majority of the unemployed get back to work, for the first time since 2007, the financial landscape is no longer defined primarily in terms of the crisis. The economy is moving forward.

As all economic transitions do, this moment of change is creating new possibilities in the financial markets. As the landscape shifts again, it's important that investors understand where these opportunities are and where they can put their money. Here are 11 areas experts think you should consider right now:

1. Commodities

As the global economic recovery accelerates, fears of deflation have been replaced with concerns about inflation. The prices of commodities and raw materials such as gold, oil and agricultural products have been rising for some time, but businesses have largely been unable to pass those higher costs along to consumers. That may change. While few experts believe inflation is likely to be a major problem, it can't be ignored.

"We are not big inflation bears right now, but that is not the point," says Seth Masters, chief investment officer for blend and defined contribution strategies at asset manager AllianceBernstein. "Even if there's only a 10% or 20% chance that inflation becomes serious, that is a big problem for investors. It will be bad for stocks and very bad for bonds, so it makes sense to have some protection against inflation, even if that is not the central case," he warns.

Real assets such as commodities can provide protection in an inflationary environment, says Kristi Mitchem, a senior managing director at asset manager State Street Global Advisers.

Rather than looking for the next hot commodity, invest in a broad range of commodities by tapping a mutual fund or an exchange-traded fund. "Investors should be well-diversified in commodities," says Mitchem.

Allocation toward real assets will vary depending upon the age and risk tolerance of the investor, but Mitchem says something in the 10% to 15% range is probably suitable for a broad range of people.

2. REITs

Certain kinds of real estate investment trusts can provide a hedge against inflation as well, according to Masters. REITs that comprise 15-year leases may provide no protection at all. "But a hotel REIT that is based on room rates that can be adjusted as the market demands may be very sensitive to inflation, although that is not always the case," Masters says.

3. Inflation-Protected Bonds

Inflation eats away at the value of traditional fixed-income securities, because the dollars you earn in interest aren't worth as much as they were when you made the investment. Over the years, financial institutions have created a number of products that shield credit from the ravages of inflation. TIPS, or Treasury Inflation-Protected Securities, are one way to go about this. TIPS offer a fixed interest rate, but the amount of principal fluctuates, as does the actual amount of interest the investor collects. At maturity, TIPS should be worth at least as much as they were when they were purchased.

Investors can also purchase I-bonds, a form of savings bond in which the interest rate, not the principal, fluctuates over time. Step-up bonds, in which the interest rate rises every year, can be found in the corporate and government agency credit markets.

4. Australian Dollars

The U.S. Treasury market was a huge beneficiary of the global flight to quality during the financial crisis. Soaring demand drove down interest rates and funded the stimulus that helped bring America out of recession. But now, the Treasury market is saturated with supply -- just look at the record $1.65 trillion 2011 deficit it's funding -- and demand as falling as the global economy recovers.

There are alternatives to U.S. Treasurys, though. "One way to hedge it is with the Australian dollar," says Steve Persky, managing partner of Dalton Investments, a $1.1 billion hedge fund based in Los Angeles. Australia came through the financial crisis without falling victim to the credit pressures faced by the U.S. and much of Europe. Its debt-to-GDP ratio was an estimated 22% last year, compared to 59% for the U.S. Furthermore, its proximity to China and the other Asian growth markets is expected to help the country boost its GDP by 4.25% this year.

5. Municipal Bonds

Given the level of alarm about the municipal bond market, investors might wonder if putting money into this sector is akin to buying subprime mortgages in 2007. Yet most issuers in the municipal bond market will repay their obligations without any problem.

Muni bonds yields -- say, 4% for 10 year bonds -- are attractive, especially considering their tax-free status. The question is how to protect yourself from weaker issuers. John Taft, the CEO of RBC U.S. Wealth Management (RBC), says he prefers general obligation bonds and revenue-backed bonds that are linked to essential services such as water and sewer service, not special projects. Some experts suggest that larger issuers with higher ratings tend to be safer, but Taft believes that independent research by an investor or analyst before buying is key.

6. Large-Cap Stocks

In the midst of the financial crisis, investors fled the equity markets and credit prices soared. As the first signs of the recovery took hold, investors began moving back into stocks. The Standard & Poor's 500 is now at 1,330 -- up nearly 100% from early 2009.

Yet there's still opportunity in stocks, even if a market correction occurs. "Large-cap stocks are relatively undervalued," Taft says. The S&P 500 index of large companies is up 24% over the last 52 weeks, while the S&P SmallCap 600 index is up 35% over the same period of time.

7. Dividend Stocks

Research shows that dividend-paying stocks tend to beat the long market. According to that theory, it's always a good time to invest in them. Wharton finance professor Jeremy Siegel researched the S&P 500 from 1957 through 2009 and found that the top 100 dividend stocks had an annualized return of 12.5% over the entire period, while the 100 companies with the lowest dividend yields returned 8.8%.

"Dividends are issued by quality companies that have a history of cash on their balance sheets -- and they are often large-cap companies, which are currently undervalued," Taft says.

8. Health Care and Consumer Staples

Investors who cycle out of the broad market in springtime and shift into defensive stocks such as health care and consumer staples tend to beat the market, according to Sam Stovall, chief investment officer of S&P Equity Research Services.

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The S&P 500 has returned about 6.1% a year since 1995. But if this simple rotation -- undertaken in April and lasting for six months -- is employed, investors' returns are boosted to 9.7%, according to Stovall. He says the results are even more pronounced among smaller companies. The spring defensive rotation boosts the return to 12.5%, compared to 9.7% for the broad market of smaller companies.

What accounts for this seeming mystery? Stovall says the broader market tends to perform better during the end of the year and late winter, thanks to the availability of bonus money, tax returns and other forms of liquidity. The rotation provides a defense against a traditional seasonal downturn for equities.

9. Stocks with Low Debt-to-Equity Ratios

If inflation picks up -- as many experts believe it will -- "investors may want to take a look at companies with low debt-to-equity ratios," Stovall says. As the cost of debt capital rises, companies with cleaner balance sheets will have less exposure. The debt-to-equity ratio for the broad market is 51%, but several industries have much lower ratios, including tech, with a ratio of 28%. "Tech companies tend to become self-funding because their median profit margins are high, at 15.4% compared to 9.2% for the broad market," Stovall says.

Other sectors with low debt to equity ratios include energy, with a ratio of 39%, and industrials, with a ratio of 46%.

10. Oversold Stocks

For the technically minded investor, some standards measures suggest when stocks are under- or oversold. The relative strength indicator (RSI), for example, tracks stocks' performance over the last 14 days and ranks them on a scale of 0 to 100. Scores below 30 suggest that a company may be oversold.

Stovall said that as of Feb. 15, investors might want to consider these stocks with RSI's under 30: Celgene (CELG), CVS Caremark (CVS), Dreamworks Animation (DWA), Family Dollar Stores (FDO) -- now the target of a $7.6 billion takeover bid by investor Nelson Peltz -- and Peoples United Financial (PBCT).

11. Cash

Finally, most experts say its wise to keep a certain amount of your assets in cash. "There is nothing wrong with keeping 10% or 15% in cash," Taft says. "Warren Buffett always said to wait for the home-run pitch. That is how you make money."


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]]>Australian dollarbondscashCommoditiesconsumer productsconsumer products stocksDebt to equity ratiodividend stocksDividendshealth care stocksInvesting adviceinvestment tipslarge cap stocksmuni bondsmunicipal bondsoversoldreal estate investment trustsREITSstock picksStocks to buyTIPStreasury inflation protected securitiesSteve RosenbushThu, 17 Feb 2011 12:00:00 ESTITT Dismantles Its Empire, Ending the Age of Conglomerateshttp://www.dailyfinance.com/2011/01/13/itt-dismantles-its-empire-ending-the-age-of-conglomerates/http://www.dailyfinance.com/2011/01/13/itt-dismantles-its-empire-ending-the-age-of-conglomerates/http://www.dailyfinance.com/2011/01/13/itt-dismantles-its-empire-ending-the-age-of-conglomerates/#commentsFiled under: , ,

ITT logoThe breakup of ITT (ITT) announced on Wednesday is yet more proof that the conglomerate model makes little sense in today's business world.

The 91-year old company was once the leading industrial conglomerate, the product of hundreds of leveraged buyouts in the 1960s and '70s. That strategy of growth came to an end as interest rates began rising steeply in the '70s.

The long, slow unwinding of the empire that former ITT Chairman Harold Geneen built is pretty much complete now. In the final act, it's now breaking itself into three pieces, including a water-equipment business with an estimated $3.6 billion in revenue, a defense business with $5.8 billion in revenue, and a new ITT aerospace, transportation and industrial business with $2.1 billion in revenue. The company had already gone through a three-way breakup in 1995, merging with Starwood in the process.

It's now a long way from the company that once threw its weight around the world, doing business with companies linked to regimes such as Nazi Germany and Augusto Pinochet's Chile.

Breaking Up Is Easy to Do

Other once-widely diversified companies have followed along a similar path. Even GE (GE) is streamlining its portfolio by selling a majority stake in NBC Universal to cable giant Comcast (CMCSA). Food company Sara Lee (SLE) is considering a breakup, if it isn't sold first. Fortune Brands (FO), which owns a wide range of businesses from Jim Beam Whisky to Moen water faucets, recently went down the road to a breakup. And steel company Timken (TKR) may follow.

In recent years, Tyco (TYC) split into separate electronics and health care companies, and tool companies Danaher (DHR) and Cooper (CBE) spun off units and put them into a joint venture. Telecom equipment maker Motorola (MOT) just separated its infrastructure and handset businesses.

The diversification theory behind the conglomerate is fairly simple: As one business unit loses steam in, another is supposed to pick up the slack. It works out nicely -- in theory. One of the problems with ITT is that U.S. government defense spending is on the wane. Instead of keeping ITT together in hopes that revenue from water pumps and other business will offset the decline in defense, ITT CEO Steven R. Loranger says it makes more sense to unlock value by restructuring.

Why? "All three companies will be better aligned with their respective customers bases," Loranger explained.

Activist Shareholders Won't Hear of It

That may seem obvious now, but it goes against the grain of everything ITT's management espoused for decades.How is it that a business model that was once all but taken for granted as a path to profit is now so out of favor? Much of the answer lies in changes in the investor base.

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Hedge funds and other shareholder activists are rising in number and in influence, challenging management at every opportunity. It's no longer enough for a company to assert that its portfolio of businesses produces synergy. Those synergies have to be demonstrated, or the company is vulnerable to takeover.

Many of the great conglomerates were simply financial rollups -- an attempt to maintain growth through acquisition. That strategy can't last forever. Just take a look at what happened to WorldCom.

The drive to grow via acquisition led to some pretty bizarre business portfolios, such as Fortune Brand's whisky-and-faucet combination. There was no way to defend such structures from the challenges of hedge funds, buyout shops and other activists.

Where Are the Profits Coming From?

And during an era when highly focused startups from Microsoft (MSFT) to Amazon (AMZN) and Google (GOOG) to Facebook dominate the market, conglomerates can't compete for capital.

The investor base has changed as well. Some 9,000 hedge funds are on the scene now, many with very disciplined strategies. Such funds didn't exist 30 or 40 years ago, and they're not likely to buy a company for its aerospace business and hope against hope that profits from the water division keep flowing.


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]]>activist shareholdersColumnsconglomeratecorporate breakupdiversificationdiversified industrial companiesHedge fundsITTITT breakupleveraged buyoutsSteve RosenbushThu, 13 Jan 2011 12:00:00 ESTIt Looks Like Prime Time for Small-Cap Stockshttp://www.dailyfinance.com/2010/10/19/prime-time-small-cap-stocks/http://www.dailyfinance.com/2010/10/19/prime-time-small-cap-stocks/http://www.dailyfinance.com/2010/10/19/prime-time-small-cap-stocks/#commentsFiled under: , , ,

Wall StreetWhen the economy is weak and the upside for equities is limited, investors typically turn to smaller companies for growth. That dynamic is repeating itself now, as small-cap stocks surge past the sluggish broad market.

The small-cap Russell 2000 index, which includes firms with an average market cap of $530 million, was up 9.12% through the third quarter. The Russell Micro Cap index, which includes companies with a market cap of up to around $300 million, gained 7.94% over the same period. In contrast, the Standard & Poor's 500, the benchmark for the broad market, has chugged along at a modest 3.89%.

That doesn't surprise Jack Fockler, managing director with Royce & Associates in New York. The $32 billion asset management company has focused on small-cap investing since Chuck Royce founded it in 1972. "Historically, smaller companies have done significantly better during low-return periods," Fockler says.

"Fertile Ground"

The small-cap stock world includes high-quality companies in a range of sectors such as construction and manufacturing according to Fockler. The segment has its share of risk, though. Volatility tends to be high, and the incidence of fraud among so-called penny stocks is a well-known problem.

However, a focus on fundamental, bottom-up analysis can identify smaller companies that are as sound as much larger, well-known institutions such as General Electric (GE) and offer attractive returns, according to Fockler. "The industrial sector has been and remains a fertile ground for micro-cap investment. We're able to find lots of companies that possess excellent balance sheets, generate above-average returns on capital and that are trading below our estimate of their worth as businesses," Fockler says.

Take Lamprell (LMPRF), which is Royce's top holding, accounting for 1.5% of its portfolio. It's a 30-year-old oil-and-gas rig-construction company based on the Isle of Man and with operations in the Middle East. The stock has returned 72% over the last year.

Fronteer Gold (FRG), a mining company based in Vancouver, B.C., also is indicative of the kinds of companies Royce is drawn to. Fronteer, Royce's No. 2 holding accounting for 1.2% of assets, has gained 59.74% over the last 52 weeks. The S&P 500 has gained 8.14% over the same period. Another example: OYO Geospace (OYOG), a company in Houston that makes instruments for measuring seismic change, is up 145% over the last 52 weeks. It accounts for 1% of Royce's portfolio. The S&P 500 has gained 8.14% over the same period.

Not Necessarily Cheap

Still, some areas are too volatile even for Royce. Fockler says he's avoiding small-cap financial companies at the moment because of their balance-sheet problems.

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Smaller stocks are a challenge for investors, and institutions tend to avoid them. Investing in this zone is still dominated by individuals, according to Fockler. While opportunity exists in this end of the market, these stocks aren't necessarily cheap. Lamprell and Fronteer both have price-earnings ratios in the 30s. He says the trick is to find smaller companies with sound businesses and carefully make their volatility work in your favor.

Royce accumulates its positions in companies incrementally, over long periods of time. The firm tends to move in opposite directions of the market, buying when others are selling, and vice versa. It also protects itself from individual company volatility by broadly diversifying its holdings. The $1.2 billion Micro Cap fund -- up 11% year-to-date-has positions in 200 companies.

"The investment opportunity is not broad-based per se. In other words, I can't say that small- or even micro-cap companies are cheap relative to their large-cap counterparts," says Fockler. "Within each respective universe, the opportunity is much more stock-specific. But in general, the quality segment of both universes is especially attractive."

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]]>Fronteer GoldLamprellOYO GeospaceRoyce AssociatesRussell 2000small cap investingsmall cap stocksSmall CapsSteve RosenbushTue, 19 Oct 2010 07:00:00 ESTVideoconferencing's Coming Boom: Polycom CEO Predicts Rapid Growthhttp://www.dailyfinance.com/2010/06/30/videoconferencing-polycom-ceo-predicts-growth/http://www.dailyfinance.com/2010/06/30/videoconferencing-polycom-ceo-predicts-growth/http://www.dailyfinance.com/2010/06/30/videoconferencing-polycom-ceo-predicts-growth/#commentsFiled under: , , , , , , ,

The telecommunications industry has been touting videoconferencing technology since at least 1964, when AT&T displayed its Picturephone at the New York World's Fair. In fact, the concept of the videophone is nearly as old as the phone itself, and prototypes predate the Beatles by many decades.

Given its long history, one might have expected that the public would have latched onto the technology, but that just hasn't been the case. While new modes of communication, from email to texting, instant messaging and wireless phones have been adopted at astonishing rates, video communications have lagged -- at least until now.

Thanks to a combination of better technology, lower prices and faster Internet connections, video communications finally are moving into the mainstream.

"The industry is at an inflection point," says Andy Miller, CEO of Polycom (PLCM), an industry leader based in Pleasanton, Calif. "In the past, video communications was mostly a boardroom technology, but that is rapidly changing," Polycom roughly splits the $2 billion market with its Norwegian rival Tandberg, which Cisco (CSCO) acquired earlier this year.

Revenue growth for the industry is rising up, according to Miller. He expects the company to grow about 40% this year. IDC (IDC) predicts the compound annual growth rate for the industry for the next five years will be about 23%, roughly twice as fast as during the previous five.

Telehealth on the Cutting Edge

The growth in the videoconferencing industry reflects the rise of a video-based Internet culture driven by websites such as YouTube and Metacafe. Miller views video as part of the larger market for unified communications, which combines audio, video, IM, file sharing and other forms of networking. That market is valued at $15 billion to $20 billion.

Until recently, videoconferencing technology was used mostly as a platform for board meetings, but that's changing fast. The Obama administration has budgeted $400 million to promote telehealth technologies that support medical professionals in providing health care long-distance. For example, doctors at the University of Pittsburgh Medical Center use Polycom video equipment to make remote diagnoses for patients around the country. The technology has been adapted for use by as diverse sectors as education and power utilities.

"We took share in the first quarter," says Miller, a former Tandberg CEO who was tapped to lead Polycom in May. Polycom shares are trading at about $30, up from a 52-week low of about $20.

Polycom has based its strategy on open communications and better video compression. In February, it reached an interoperability agreement with a number of other tech companies including Microsoft (MSFT), Hewlett-Packard (HPQ), IBM (IBM), Siemens (SI), Broadsoft (BSFT), Juniper (JNPR) and Avaya. The group says it can deliver full-motion HD-quality video with 512 kbps of bandwidth, and full-motion DVD-quality video over 128 kbps. Most household broadband services offer at least several times that amount of bandwidth, making high-quality video communication for the mass market feasible. Polycom also is working to drive the product into the mainstream by integrating it into browser applications such as Microsoft Live Meeting.

Miller says video communications will get another boost as mobile communication hardware and networks become more robust. For example, Apple's (AAPL) iPhone 4 has a front-facing camera, which will pave the way for the videophone as a mass-market mobile app for consumers and enterprises alike. That would realize a dream nearly as old as telecom itself.

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]]>Andy MillerbandwidthbroadbandBroadSoftcommunicationsinternetiphone 4JunipermobilenetworkingphonepolycomSiemenssmartphonesoftwareTANDBERGtechnologytelecomtelehealthTelepresencevideoVideoConferencingyoutubeSteve RosenbushWed, 30 Jun 2010 15:50:00 ESTOracle, Java and the Future of Corporate Computinghttp://www.dailyfinance.com/2010/06/30/oracle-java-and-the-future-of-corporate-computing/http://www.dailyfinance.com/2010/06/30/oracle-java-and-the-future-of-corporate-computing/http://www.dailyfinance.com/2010/06/30/oracle-java-and-the-future-of-corporate-computing/#commentsFiled under: , , , , ,

From email to instant messaging and social networking, the consumer market has been the proving ground for the technologies that run the enterprise.

Now some experts believe that popular tech appliances such as the Apple (AAPL) iPad -- which combine proprietary software and hardware in a single, special-purpose device -- may tell us where enterprise computing is headed next.

That would be a huge shift for the information technology market, which has been based on open software standards that can be applied to commodity pieces of hardware.

Oracle the Latest Example

The latest example of that shift may be Oracle (ORCL), which in January completed its acquisition of Sun Microsystems, a company known for its servers as well as its Java programming platform. Oracle may soon develop single-purpose machines such as database appliances, or accounting or supply-chain management machines.

"That may well be the future of the corporate computing, in which companies like Oracle differentiate hardware, which is generally a lower margin product, with embedded software, much as Apple differentiates the iPhone," says Al Hilwa, an analyst with tech researcher IDC.

IBM (IBM) and Hewlett-Packard (HPQ) already have software and hardware businesses capable of producing such appliances on their own. And Apple, should it decide to move deeper into the enterprise market, has an integrated software and hardware platform as well.

There are plenty of big enterprise tech companies -- such as Intel (INTC) on the hardware side and Microsoft (MSFT), Google (GOOG) and SAP (SAP) on the software side -- that have yet to show much interest in integration. Although, even these relatively pure plays have demonstrated some willingness to experiment -- Google with the Android phone, and Microsoft with its Signature PCs, stripped of annoying preloaded software.

Short Trip to the Enterprise Appliance Market

Amazon (AMZN), which also has shown an interest in building its enterprise business, has moved into the consumer appliance market with its Kindle electronic reader. It would be a short trip into the enterprise appliance market.

There are early signs that the appliance market is forming. Oracle and HP worked together to develop the Exadata database and storage appliances, which were launched in 2008. "We really need much more performance out of our databases than we currently get," Oracle CEO Larry Ellison said at the time. "Large databases are tripling in size every two to three years. That creates a fundamental problem. They can't move that data off the disks fast enough."

The appliances put the memory and the storage together, reducing the amount of data flowing over the connections between them. Smaller companies such as Netezza offer rival products. When Exadata was launched, Netezza Chief Operating Officer Jim Baum -- who's now CEO -- derided the partnership approach of Oracle and HP, saying the key is integration, not bolting different products together "with glue and spit."

Oracle's acquisition of Sun, which developed the Java programming platform that Oracle products are based on, shows that Ellison may have decided that Baum had a good point.

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]]>computingconsumer electronicsdatabase softwaree-readerenterprise softwareExadata databasehardwareInteljavaJavaScriptkindleOraclesoftwaretechnologySteve RosenbushWed, 30 Jun 2010 09:00:00 ESTHP's Restructuring Clears the Deck for Cloud Computinghttp://www.dailyfinance.com/2010/06/02/hp-restructuring-cloud-computing/http://www.dailyfinance.com/2010/06/02/hp-restructuring-cloud-computing/http://www.dailyfinance.com/2010/06/02/hp-restructuring-cloud-computing/#commentsFiled under: ,

computingWhen the smoke clears from the restructuring that HP (HPQ) announced on Tuesday -- it will eliminate a net 3,000 jobs (shedding 9,000 but hiring 6,000 in other areas) over the next few years -- the company will have an additional $1 billion to invest in new initiatives such as cloud computing. It's the latest in a series of moves, such as the acquisition and integration of EDS, that will help push the computing company into higher margin markets.

HP is just one of many tech companies, such as SAP (SAP), that are investing in cloud computing. The idea is to move applications and computing power from the desktop to a shared network, known as the cloud. This will reduce costs and boost efficiency: Instead of buying 10,000 copies of a software program and having 95% of them idle at any one time, the company can buy 500 copies, which are in use all the time.

"A More Serious Competitor" in Cloud Computing

Some clouds are truly public and power applications such as Gmail or iTunes. Other clouds are private and limited to use by large corporations or other enterprises. Investments in this new architecture will account for a growing percentage of the IT market over the next few years -- 9% in 2012, compared with 4% in 2008, according to IDC. More importantly, cloud computing will account for 25% of the growth in IT spending during the same four-year period.

During a conference call on Tuesday, Raymond James analyst Brian Alexander noted that HP seemingly wants to be "a more serious competitor in the cloud."

HP Executive Vice President Ann Livermore explained during the call how cloud computing would fit into the company's enterprise strategy, which will receive an additional $1 billion in resources during the next few years. In HP's view, customers will want to consume its products and services in three ways: Traditional on-premises computing, outsourced computing, and services via the cloud.

"So we think one of the real differentiators for HP is going to be our ability to help clients with their services in all three ways. And certainly the cloud aspects of it are very important," she said. (A replay of the webcast is available at the company's investor relations page here.)

Open to Acquisitions

It's an important development for HP, which offers a mix of high- and low-margin products, ranging from corporate network consulting services to the calculator. It will help HP better compete with rivals such as IBM (IBM), Microsoft (MSFT), Google (GOOG) and Amazon (AMZN), all of which have incorporated cloud computing into their strategy. That list also includes Oracle (ORCL), even though its CEO, Larry Ellison, likes to describe talk of the cloud as "fashion-driven" computing. Given Oracle's acquisition of hardware company Sun, the company looks more like HP and IBM, offering a range of hardware, software and services.

Livermore didn't rule out the possibility of acquisitions to accelerate the company's resources in cloud computing. "As you know, we...look at M&A opportunities all the time, and around the cloud-services space, we'll certainly do [so]," she said. As cloud computing accounts for a greater percentage of IT spending growth, HP and other tech companies will have to establish leadership in the market.

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]]>cloud computingsoftwareSteve RosenbushWed, 02 Jun 2010 09:50:00 ESTAs Cloud Computing Ramps Up, Where Are the Opportunities?http://www.dailyfinance.com/2010/06/01/cloud-computing-investments/http://www.dailyfinance.com/2010/06/01/cloud-computing-investments/http://www.dailyfinance.com/2010/06/01/cloud-computing-investments/#commentsFiled under: , , ,

computerAs I noted last week, enterprises are beginning to embrace the concept of cloud computing, in which applications and computing power are moved from individual desktops to a shared network. Over the next few years, this shift will account for a greater share of IT spending and a huge part of its growth. This week, we'll take a look at how that growth will evolve and at a few companies that stand to benefit.

A study by IDC shows that global spending on cloud computing is growing a rate of 27% a year, or nearly four times as fast as the overall information technology market. Total spending on cloud computing -- which includes business applications, servers, storage, application development and deployment and infrastructure software -- will more than double between 2008 and 2012, according to IDC. It was $16.23 billion, or 4%, of the $383 global IT market in 2008.

Spending on the cloud is expected to rise to $42.27 billion, or 9% of the $493.71 billion IT market in 2012.
Cloud computing is becoming more important to every element in the tech food chain, from suppliers of infrastructure and applications to the clients who buy it. The growing importance is even more dramatic when one considers just how much of the market's growth is being channeled into the construction of the cloud. The IT market is expected to grow from $462 billion in 2011 to $493 billion in 2012. The cloud is expected to account for 25% of that $31 billion in new spending.

"The implication for IT suppliers is clear. During the next several years, IT suppliers must position themselves as leaders in IT cloud services, or forfeit an ever-expanding portion of the industry's growth," Frank Gens of IDC concludes.

The Hot Spots

Where, precisely, will this growth occur? The biggest part of the market is business applications, which accounts for more than half of all spending on the cloud. About 52% of the cloud market will be focused on business applications by 2012. That's down a bit from 57% in 2008, but still a huge opportunity for big IT companies.

That's one reason why Microsoft (MSFT) was upgraded last week by brokerages such as FBR Capital Markets (FBCM). Software analyst David Hilal raised his rating on the company to outperform and put a price target of $32 on the company, up by $1. (The stock closed Friday at $25.80.) The software giant is moving embracing the concept of cloud computing, and new versions of its Office productivity suite have fully developed Web offerings, matching the functionality of its traditional desktop product. Goldman Sachs (GS) rated Microsoft a buy earlier this year, noting the strength of its enterprise business.

SAP (SAP), bolstered by its acquisition of Sybase, is rushing to catch up in the cloud, where it had fallen behind Microsoft and Oracle (ORCL). But the deal should help it catch up.

The greatest opportunity may occur in the cloud server and storage markets. The server market is expected to hit 8% of total spending by 2012, up from 5% in 2008. The storage market is expected to account for 13% of the market, up from 5%, during the same time frame. Just as users of Google Docs -- and, increasingly, Microsoft Office -- can store their documents online, instead of on their desktop, enterprise customers are beginning to shift some of their storage to the cloud as well.

As in many aspects of the tech market -- from social networking to the iPhone -- consumers are leading the way for the enterprise. That is particularly true of the cloud, which has driven popular consumer applications for the last few years.

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]]>cloud computingOracleSAPsoftwaretechnologySteve RosenbushTue, 01 Jun 2010 13:00:00 ESTPrivate Cloud Computing Takes Off in Companies Not Keen on Sharinghttp://www.dailyfinance.com/2010/05/28/private-cloud-computing-companies-not-sharing/http://www.dailyfinance.com/2010/05/28/private-cloud-computing-companies-not-sharing/http://www.dailyfinance.com/2010/05/28/private-cloud-computing-companies-not-sharing/#commentsFiled under: , ,

digitalThe most familiar examples of cloud computing are big, publicly available, Web-based applications such as Gmail and Google Docs. But given concerns about security and reliability, few big companies are ready to entrust their IT operations to publicly shared infrastructure, even if it's cheaper. Those companies increasingly have another alternative -- the private cloud.

Large companies are creating private clouds by shifting their internal computer power and applications off the PC desktop and onto shared infrastructure, where employees use it only as needed. That eliminates the need to buy 10,000 copies of a software program, only to see 95% of them go unused on any given day. Instead, the company buys 500 copies of the program, which get used every day, all the time.

Greater Economies of Scale

Unlike the public clouds, the resources of the private cloud are shared only within the corporate community. They're controlled by the corporation, not a third-party vendor that has the ability to lease them to anyone it chooses.

"These large, enterprise organizations have the economies of scale to deliver the same thing as [public clouds]. And actually, they have greater economy of scale because they don't have to worry about delivering any of the marketing, sales or profit aspects [with an] internal cloud," says Brian Stevens, chief technology officer at Linux pioneer Red Hat (RHT), in Raleigh, N.C.

Now, the mere mention of cloud computing is enough to provoke plenty of eye-rolling. Oracle (ORCL) founder Larry Ellison prefers to call it "fashion driven" computing or "complete gibberish."

But Bryan Byun, general manager of cloud applications at Palo Alto, Calif.-based software company VMWare (VMW), says there's something to the concept, at least for enterprises. "For a large company, we do see this as being different," he said on May 25, where he, Stevens and other software executives convened for the Morgan Stanley Cloud Computing Symposium.

Public and Private Clouds Merging?

Software companies, which have focused most of their cloud computing efforts on public applications such as messaging and media, see increasing opportunity in the corporate world. "You may be more familiar with [Akamai] in the media and entertainment spaces, but you should become increasingly familiar with us in the commerce, the retail, the enterprise business-to-business portal," said Chris Schoettle, executive vice president for products at Akamai Technologies (AKAM), the Cambridge, Mass.-based Internet infrastructure company that serves customers such as Apple's (AAPL) iTunes.

What sort of companies are developing private clouds? Well, Morgan Stanley (MS), for one, although that private cloud is likely to be a transitional stage. Public and private clouds will merge over the next few years as public clouds earn more trust, and the need to incorporate mobile and stay-at-home workers into the mix forces the extension of the private cloud into public networks.

"So if we build our own internal cloud, which we are...it can't stay like that forever," says Anthony Golia, executive director of emerging technologies for enterprise computing at Morgan Stanley.

For now, though, big companies are going to spend a lot of money building their own private clouds because the comfort level with public clouds isn't high enough. "Can we actually have a public cloud that can guarantee certain service-level agreements, certain tiers of service?" wonders Greg McCall, an analyst with Sage Asset Management in New York. The answer is: Maybe soon, but not quite yet.

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]]>cloud computingOraclesoftwaretech stocksSteve RosenbushFri, 28 May 2010 09:15:00 ESTMicrosoft's Enterprise Sales Are Powering Uphttp://www.dailyfinance.com/2010/05/21/microsoft-enterprise-sales-powering-up/http://www.dailyfinance.com/2010/05/21/microsoft-enterprise-sales-powering-up/http://www.dailyfinance.com/2010/05/21/microsoft-enterprise-sales-powering-up/#commentsFiled under: , , ,

MicrosoftMicrosoft (MSFT), which dominates the market for consumer software, is making deeper inroads in larger businesses. Familiar Microsoft programs such as Word, Excel, Exchange and PowerPoint appear ubiquitous on the corporate world's computers. But the guts of the corporate IT universe and many applications that make large enterprises run are often built on software from rivals.

Redmond's sales to businesses are growing at a much faster pace, up 14% year-over-year during the third fiscal quarter, which ended Mar. 31. Year-over-year results were flat during the second quarter.

Results for the smaller and medium-size business division are similar -- flat during the second quarter, up 15% during the third. "Enterprise spending [is] beginning to kick in," Goldman Sachs software analyst Sarah Friar said in a report.

Stronger Pipeline for New Products

Some of the growth reflects a stronger economy, which allowed cost-conscious companies to satisfy pent-up demand. Yet much of the gains also reflect Microsoft's stronger pipeline for new products.

The most familiar of these new products is Office 10, the latest version of the productivity suite that includes applications such Word, Excel, PowerPoint and Exchange. This is a major upgrade with a host of new features, such as enhanced Web versions of the software and more advanced social networking capabilities.

You can even access a full version of Word through Facebook, which is an effective use of the business partnership. Microsoft invested $240 million in Facebook in 2007. The online versions of Office software, known as Office Web Apps, are a clear response to Google Docs, the free productivity programs that are available over the Web from Google (GOOG).

Cloud Computing Competition

It's just one of several critical new products from Microsoft, which has been on the defensive in recent years as Google confronts it in the business market and Apple (AAPL) clobbers it in entertainment and mobility.

So far, so good. The launch of the Windows 7 operating system in recent months has been well-received. Windows Server 2008, released two years ago, has done well, too.

More recently, Microsoft has been moving ahead in cloud computing. The Azure Cloud Platform is an operating system that resides on Microsoft data centers instead of on the networks of its customers. Developers can create applications for the Azure cloud, which will be in fierce competition with cloud computing offerings from Google, Amazon and others.

The Apple iPhone may be getting all the attention, but Microsoft is still plugging away in mobility, with Phone 7. The new mobile operating system is due later this year. It will feature 3D effects and "hubs" that combine online content with content on the phone.

Gaining Market Share

Together, the new products "provide a platform for renewed innovation vigor beyond anything we have seen from Microsoft for multiple years," Goldman Sachs' Friar said. She expects a burst of revenue growth as the economy and IT spending improve. Sales fell 5% during calendar year 2009, but Friar expects 11% growth this year and 12% in 2011.

Microsoft may also be poised to take a bit more market share. Gartner says the 5% drop in IT spending in 2009 was the worst in industry history. It expects only 3.3% growth for 2010. It looks like Microsoft can top that, thanks in part to its growth in the enterprise market.

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]]>cloud computingMicrosoftsoftwareSteve RosenbushFri, 21 May 2010 10:25:00 ESTWhy Sybase Will Help SAP Gain Ground on Oraclehttp://www.dailyfinance.com/2010/05/13/why-sybase-will-help-sap-gain-ground-on-oracle/http://www.dailyfinance.com/2010/05/13/why-sybase-will-help-sap-gain-ground-on-oracle/http://www.dailyfinance.com/2010/05/13/why-sybase-will-help-sap-gain-ground-on-oracle/#commentsFiled under: , ,

SAPIt took SAP's co-CEOs Bill McDermott and Jim Hagemann Snabe just three months to make their big move: The enterprise software giant announced on May 12 that it's buying software maker Sybase for $5.8 billion. The two execs, who emerged on top after a management shakeup at the German company, inherited plenty of problems, including declining sales and profits, loss of market share and an underperforming stock price. Those deficiencies were merely the symptoms of a deeper issue with product development, where SAP (SAP) had missed the boat in critical areas such as mobility and "cloud" computing.

SAP's problems, however were a source of glee for Oracle (ORCL) CEO Larry Ellison, who openly taunted SAP over its weak performance and turmoil in the executive suite. "Every quarter we grab huge chunks of market share from SAP," said Ellison in Oracle's earnings report in March. "SAP's most recent quarter was the best quarter of their year, only down 15 percent, while Oracle's application sales were up 21 percent. But SAP is well ahead of us in the number of CEOs for this year, announcing their third and fourth, while we only had one."

Now, the move to buy Sybase should help SAP in several ways. With the deal, McDermott and Hagemann Snabe have put their imprint on the company and shown they're serious about turning it around. McDermott, the company's first American-born CEO, has run operations for the last few years. Hagemann Snabe was previously in charge of product development. The Sybase deal reflects their backgrounds. Predecessor Leo Apotheker was a sales veteran who tried address the company's problems through quicker fixes, such as raising prices during a recession.

Moving Target

Sybase gives SAP more heft in mobile applications for businesses. SAP has been late to this market, which is surprising since Apple (AAPL) is a key customer, but better late than never. Sybase also has strength with a technology SAP refers to as in-memory computing, a technique that speeds up processing speeds by conducting operations in the memory of the computer, rather than sending the task to a separate processor.

SAP is betting that in-memory computing will help it develop an edge over Oracle in the database market. Oracle has nearly a 50% market share, according to a report issued last month by Citigroup.

But Oracle is a moving target. Its acquisition of Sun Microsystems closed early this year, giving Oracle the Java operating system, dominance in Linux, and Sun's workstations. Now, Oracle looks more like IBM (IBM) and HP (HPQ), which make software and hardware.

Oracle will use that capability to develop what it refers to as "appliances" that combine its software with specialized hardware. That may help it develop an advantage in increasingly complex industries such as financial services and health care, where off-the-shelf hardware may no longer cut it, according to Citigroup, which rates Oracle a buy.

A Useful Countermeasure

SAP is a much more limited -- the charitable word might be "focused" -- company. It's a software applications maker. But that's just one part of Oracle's business. So, SAP absolutely must have the best technology in the market, at the very best price.

The Sybase deal adds to its arsenal, at a time when Oracle has its hands full with the integration of Sun. Oracle needs to fix the Sun's declining workstation business. It also needs to bring the down cost and complexity of Sun technology for the sake of its customers. Companies that use Sun equipment must use Sun-approved products in their network, and those products must be installed by Sun-approved engineers. Oracle needs to make life simpler for Sun users.

While Ellison is busy wringing synergies out of the Sun acquisition, SAP's McDermott and Hagemann Snabe need to quickly make the most of the Sybase deal. Who'll get the last laugh?

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]]>mergersmergers and acquisitionsOracleSAPsoftwareSun MicrosystemstechnologySteve RosenbushThu, 13 May 2010 10:40:00 ESTThe Tough Choice Facing SAP's New Leaders: How to Cut Costshttp://www.dailyfinance.com/2010/02/09/the-tough-choice-facing-saps-new-leaders-how-to-cut-costs/http://www.dailyfinance.com/2010/02/09/the-tough-choice-facing-saps-new-leaders-how-to-cut-costs/http://www.dailyfinance.com/2010/02/09/the-tough-choice-facing-saps-new-leaders-how-to-cut-costs/#commentsFiled under: , , , , , ,

As a rule, it's a good sign when a struggling company invests for the long term, emphasizing research and development over cost-cutting, and customers over Wall Street. SAP, the giant German software company that replaced its CEO in a management shakeup over the weekend, seems to be veering down that sensible path.

In SAP's case, however, a hard look at costs might be unavoidable. Expenses are way out of line compared to those of rivals such as Microsoft (MSFT) and Google (GOOG)

Continue reading The Tough Choice Facing SAP's New Leaders: How to Cut Costs


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]]>SAPtechnology stocksSteve RosenbushTue, 09 Feb 2010 15:00:00 ESTA Fog Surrounds Amazon's 'Cloud Computing' Efforthttp://www.dailyfinance.com/2010/02/02/a-fog-surrounds-amazons-cloud-computing-effort/http://www.dailyfinance.com/2010/02/02/a-fog-surrounds-amazons-cloud-computing-effort/http://www.dailyfinance.com/2010/02/02/a-fog-surrounds-amazons-cloud-computing-effort/#commentsFiled under: , , ,

For all of the success that Amazon (AMZN) enjoyed last year, one area of its business remains a mystery to investors. Amazon Web Services was launched in March 2006 in an effort to tap into the market for "cloud computing." In a stretch way beyond selling books or TVs, Amazon decided to rent out its computing infrastructure -- software services and hardware -- to other large corporations and to governments, leveraging an asset in which it had invested 12 years and $2 billion.

Continue reading A Fog Surrounds Amazon's 'Cloud Computing' Effort


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]]>amazon.comColumnstech infrastructuretech spendingtechnologytechnology stocksSteve RosenbushTue, 02 Feb 2010 16:30:00 EST