From 2007-12, we saw an acceleration of a trend we called “disruptive mobility“, a move toward ultra-mobility and apps so powerful that it redefined the technology sector. We believe we are entering an age where mobility devices are becoming increasingly commoditized and the hardware builds that drove sector growth from device manufacturers to component suppliers are now not as important as they once were. The law of large numbers is catching up with smartphones as developed markets have become saturated.
The mobility trend is still relatively new and we believe that there is still significant growth for some companies with exposure to mobile semiconductors, smartphones, and tablets. However, the pace of growth appears to be slowing faster than previously anticipated. Over the past year, we have seen significant commoditization of both smartphones and components. The smartphone trend does not appear to be going away and it looks like there will be some sustained demand for such devices for the foreseeable future. As a result, we believe that the smartphone market can continue to grow long term.
Business of Cloud
We see SaaS and Infrastructure-as-a-service (IaaS) becoming increasingly popular, with services being run in proprietary remote data centers that increasingly run on “self-made” hardware and software using open platforms. In fact, proprietary hardware and software face an uphill battle in the face of these threats given the rise. The rise of Amazon Web Services – a $3 billion run rate IaaS division of Amazon – has investors particularly worried given packed user conferences and rapid growth. Also, SaaS companies such as Salesforce.com and ServiceNow seem like one of the only sub-sectors to widely beat and raise forecasts in the recent quarter, as many companies across tech have hit road bumps. Proponents believe that the open-source cloud environments can be deployed on commodity hardware including rack servers and internal DAS drives for storage.
For reference, IDC forecasts overall IT spending will amount to $2.5 trillion in 2016 with $1.2 trillion coming from in IT Hardware. In comparison, IDC forecasts 2016 revenues for IaaS, SaaS, and Platform-as-a-Service (PaaS) to be only $30.9 billion, $57.7 billion, and $9.8 billion, respectively. These forecasts mean that “old tech” could still have a large market to serve.