Technology Investment Themes from Mobile World Congress 2014

CM Research highlights how investors should play some of the technology investment themes that came up at the Mobile World Congress (MWC) in Barcelona this week. TMT sector strategist Cyrus Mewawalla points you to recent research by his firm in the area.
  • Software defined networks: AT&T announced it will become the first major telecom operator to adopt Software Defined Networks. To find out what SDN technology means for investors, see “Software Defined Networks”. We are negative on Cisco as a consequence.
  • Big Data: IBM CEO Virginia Rometty delivered a key note address on Big Data. Her main message was that data is the world’s next natural resource and IBM aims to exploit it. To find out where the Big Data industry is going and who are the winners and losers, see “Big Data
  • Cyber security: Boeing announced a new self-destruct smartphone, Fireeye revealed Apple’s iPhone security flaw and Juniper Networks warned that we are heading towards World War III in cyber space unless corporations spend more on cyber security. We argued something similar in “Cyber Security”, and we still believe the cyber security sector is the most undervalued sector in global tech
  • Social media: Mark Zuckerberg, Facebook CEO, told us that social media is now centred around messaging, right after he paid $19bn for WhatsApp. But what are the other three pillars of mobile and who are the winners and losers if one looks at the bigger picture of mobile? We answer that question in “Facebook / WhatsApp and the Four Pillars of Mobile
  • Net neutrality: Netflix announced it is paying Comcast for preferential access to its pipes, enhancing quality of service for Netflix customers, but breaking the founding principle of internet regulation, Net Neutrality. CM Research first predicted this would happen in this 2011 note on “Net neutrality”. We were too early. In “Net neutrality update” we explain what this means for investors now.
  • Asian messaging apps: On the back of the WhatsApp acquisition, Sina announced it may spin off its Weibo messaging platform for $7bn and Tencent soared as investors saw more value in WeChat. In “Chinese internet” we valued the leading Chinese internet companies, explaining why we thought Tencent was undervalued and Sina overvalued.
  • US/China audit dispute: Staying on the China theme, the US and China are locked in a war of words over who’s in charge of regulating US listed Chinese internet companies. The entire Chinese internet sector give or take a few small companies falls into that category. Yahoo may become a casualty, as we explain in “Alibaba: Yahoo’s downside risk
  • Robot wars: Google and IBM appear to be at war over who will create the best robots. Both see robotics as a lucrative future revenue stream. How should investors play the market? In “Robotics” we spell it out. iRobot is on our 2014 Conviction Buy List.
  • Telco strategies: Jan Koum, founder of WhatsApp, announced that WhatsApp would soon introduce voice calls. With 450m users, that has serious implications for telecom operators, who already lose $32.5bn a year from lost texting revenues, according to Ovum, on the back of free messaging apps such as WhatsApp. In  Where do telecom operators go from here? we predict that telecom operators need to go soft(ware) or face terminal decline. Telcos like SK Telecom are already doing so. Telcos like BT, in our view, are taking the much riskier route of trying (again) to become entertainment companies.
  • Putting it all together: Our “2014 TMT Outlook” summarises how to play all these investment themes in 2014, highlighting our top 10 “conviction buys” and our “danger list” of stocks.

by Cyrus Mewawalla, CM Research