Quick Thoughts: Yep, More Predictions for 2012

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OK.  There is an unwritten rule that all blogs have to start a new year with either a list of resolutions or predictions.  Since I have no willpower whatsoever, I’ll take the easy road and make 6 predictions for 2012.

Prediction #1.  Global PC demand will disappoint in 2012 and long-term market forecasts will be reduced yet again.  There are several reasons for this.  First, the economy is not good and isn’t expected to recover in the next 12 months.  Second, tablets are killing consumer demand.  The applications that make up the vast majority of consumer PC – e.g. web surfing, email, e-tail, media streaming, social networking, etc. – are well served by tablets, which are improving in functionality, hitting new price points, diversifying in form factor and proliferating at an historically unprecedented pace.  Why upgrade the PC?  Just get a new tablet instead.  Third, Windows8 is a BIG upgrade, changing the look and feel of the GUI and the guts of the OS.  Application compatibility and lingering bugs will be big issues for enterprise IT managers who still remember Vista.  May as well wait it out.  Moreover, data center virtualization lets IT provision new applications and supplement desktop horsepower without upgrades.  CIOs are also pondering the big move to the cloud, a world which may not involve PCs at all for many employees.  Finally, many proponents of traditional PC architecture acknowledge obstacles to growth in developed economies, but point to the emerging world as the source of future demand.  Having seen these same developing markets leapfrog directly to mobile telephony, I remain skeptical that the growing economies of Asia, Africa and South America will be content to walk in the footsteps of the West, fifteen years behind. Winners: mobile platforms and technology, cloud-based applications and infrastructure providers, international wireless carriers.  Losers: The PC value chain.

 

Prediction #2.  In portable platforms, Android will gain, iOS will hold serve, Windows will get a foothold, everyone else will suffer.  Android is positioned to take more than half of the global smartphone market in 2012, having hit 46.9% share in the US for November, up 310bp from the previous month.  On the tablet side – not counting Amazon’s Kindle products, which do not use Google’s user interface – Android has been a laggard, but this should change.  Until the March release of “Honeycomb”, Android was specifically tailored to the needs of a smartphone, leaving it inadequate to the needs of a more capable tablet platform.  With each subsequent software release, Android is closing the functionality gap vs. Apple, putting it in position to begin to replicate its success in attacking the smartphone market.  Amazon deserves notice on its own, as its tablets are only nominally based on Android.  All signs point to a bumper Christmas season for Kindle, potentially making it the number two tablet player already.  As for Apple, it remains the technology leader, but will find it impossible to defend its nearly 80% share of the tablet market against a raft of innovative and lower priced competitive products.  I expect the iPad to exit 2012 with closer to 50% market share, with iPhones holding at better than 20% of smartphones.  Microsoft’s Windows Phone platform has been a dud so far despite critical kudos, but the ecosystem has a lot of goodwill amongst carriers, device makers and software developers who have vested interest in seeing a strong alternative to Android and iOS.  I look for share losses to reverse in 2012, with high single digit global smartphone market share a realistic possibility by year end.  In contrast, RIM’s Blackberry will see accelerating subscriber losses to accompany shrinking device sales, with little hope of a turnaround.  Winners: Android ecosystem, Amazon, Microsoft, Apple.  Losers: RIM, Nokia.

 

Prediction #3.  Enterprise spending will be disappointing with price pressure in many categories.  First, and once again, the economy is bad.  Second, government spending at all levels is 18% of the global enterprise market and should be under particular pressure during 2012.  Third, spending on data center virtualization is decelerating toward its peak.  Fourth, the cloud-based applications providers and hosts most likely to drive spending growth going forward are the most sophisticated data center operators on the planet, with little need for premium-priced proprietary hardware and software.  Think commodity servers, storage and networking supporting home-grown software built on open-source foundations.  Winners:  Cloud-based applications providers and hosts.   Losers: Traditional data center hardware and software vendors.

 

Prediction #4.  Spending on patent litigation will rise, but incremental judgments will do little to settle ongoing IPR disputes.  Lawsuits are flying everywhere.  Apple vs. the Google ecosystem.  Android licensees vs. Apple.  Oracle vs. Google.  Microsoft vs. Motorola.  These skirmishes are fought on very closely defined terms – a few patents, on a couple of products, produced by a single company, and sold into a single country.  A victory at the first court level is followed by appeal, which often sets aside the original penalty.  Even if an injunction or import ban is won and upheld, it applies only to the specified products from the specified company – all others are free to sell until their own day in court.  Even if a key product can be blocked, the competition is free to reengineer the product to work around the specific patent in question, which is generally defined narrowly enough that there is plenty of room for a work-around and given the time spent in court, typically just about ready to go once a verdict is in force.  In the end, Steve Jobs’ avowed “Thermonuclear War” could be more realistically described as slap fight.  In 2012, IPR lawsuits will do little to sway the real basis of competition, other than waste executive time and legal expenses.  Ultimately, this will have to be settled through negotiation and royalty agreements.  Winners: Patent lawyers, tech reporters.  Losers: All industry participants, investors.

 

Prediction #5.  The audience for web-based video will continue to grow, attracting advertising dollars, and thus, new programming.  The gigantic rights fees recently negotiated for NFL football will serve to limit cord cutting over the next decade amongst the majority of sports-loving American households, but are also evidence of the end-game approaching for channelized video.  CBS will pay more than 25% of its current revenue base to continue broadcasting its NFL package.  It will try to recoup its commitment by prying more money out of Cable and Satellite systems, which in turn will press to raise rates on a consumer base that has seen its monthly Cable bill rise at a better than 6.5% annual rate over the past 25 years.  At some point, users will revolt as the current $140 average monthly payment rises to gobble an ever greater proportion of the household budget.  That said, the impact in 2012 is not likely to be felt in mass cord cutting.  Rather, the number of cable connected TVs per household, currently 2.7, is likely to reverse for the first time ever in 2012.  Audiences for channelized programming, already stagnant, may ebb.  The slack has been taken up by internet-based video, which continues to see dramatic gains in cumulative viewership – up by nearly a factor of 10 YoY in the US for the month of November to more than 40 billion individual videos watched by more than 180 million unique users for 3.7 billion cumulative hours.  This explosion of viewers is drawing video advertising – still tiny compared to spending on broadcast TV but growing more than 50% YoY.  I expect these trends to continue apace, with a growing on-line audience drawing significant ad spending and attracting new programming as a result.  In an election year, the pain of shifting ad dollars may be muted on channelized video, but the implications for the future are painful.  Winners: On-line video purveyors.  Losers: Broadcast TV, Cable and Satellite.

 

Prediction #6.  New spectrum will be applied to 4G LTE in the US.  In the wake of the AT&T-T-Mobile debacle, industry focus will return to finding additional spectrum in which to build out 4G.  Already, Verizon has purchased the rights to 40MHz of spectrum from a cable industry consortium and AT&T has gained approval for its acquisition of 6MHz in the 700MHz band from Qualcomm.  Next up, in terms of attractiveness and availability, is another 40MHz in the 2.1GHz band along with 6MHz of unpaired spectrum at 700MHz controlled by Dish Network.  LightSquared controls an even bigger chunk of spectrum (59MHz) in a theoretically more valuable band (1.5GHz) but is currently in a fierce battle to retain its right to build a 4G network despite evidence that existing GPS receivers would face significant interference from the new network.  Clearwire has 150MHz of spectrum but sits in a highly disadvantageous band at 2.7GHz.  Finally, terrestrial TV broadcasters currently inhabit the most attractive spectrum for commercial communications.  These TV channel assignments, based on 50 year old analog broadcast requirements, are wasteful – moving the digital signals to narrower, more closely spaced slots could free up as much as 120 MHz of new spectrum for auction.  The catch is that the FCC needs to give incentive to the TV broadcasters to induce them to move, and Congress has indefinitely delayed giving the necessary approval to the FCC.  I expect movement on all of these fronts in 2012, with the fate of Dish Network and its frequency licenses likely to be settled sooner rather than later.  Winners: Dish, Clearwire, TV Broadcast station owners, Consumers, Qualcomm, Verizon, Tower Companies.  Losers: Fixed Broadband Providers

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