Hot or not? Where to look for growth
Are we in the midst of a technology recovery? That depends . . . on the technology. Below, a look at some of the technologies that are currently waxing and waning in four important tech sectors.
The InternetHOT: E-commerceNOT: Web services With the dot-com meltdown three years ago, many thought consumers would take a back seat to businesses in embracing Web-based technology.
Instead the reverse has happened. Electronic commerce is continuing to advance, with established retailers filling the niche abandoned by dot-coms. And the Web services business pushed by giants like Microsoft Corp. and IBM Corp. to enable interactive business services and support network interoperability has been slow to take hold.
Online retail sales have galloped to $52.3 billion last year from $33.7 billion in 2001, according to the research firm comScore Networks Inc. Sales over the Web represented 4.5 percent of all retail sales in 2003, but Forrester Research Inc. in Cambridge has forecast they will continue to outpace overall sales and account for 10 percent of all sales by 2008.
Kate Delhagen, retail analyst for Forrester, cited several reasons: More people are going online and many have become comfortable with Web-based transactions. And after initially experimenting with small purchases, consumers are now spending more money online and extending their online buying to a broader range of products.
"The `pure plays' catalyzed the industry's attention around the Internet," Delhagen said, referring to the crop of short-lived companies that sold products exclusively online. "And they scared some traditional retailers into action."
On the Web services front, however, companies selling software and tools to help businesses organize their operations around the Internet and better communicate within a computer network and between networks ran into budgets frozen by the recession.
Even now, corporate buyers are moving forward with caution. Many are clamoring for lower cost and more versatile "open standards" technology rather than the proprietary systems that dominated in the 1990s, said Mark Gilpin, a vice president and research director for Forrester. That has cut into the profit margins of some vendors.
Early visions of companies investing aggressively in comprehensive Web services solutions have proven elusive, Giga Research, a Forrester subsidiary, acknowledged in a report last month. But the Giga analysts said the market was picking up incrementally and projected it would gain momentum as technology spending resumes.
The first Web services applications look to be "marginal," software and services that let companies perform cross-organizational transactions, said Thomas Davenport, a Babson College professor of information technology and management.
"Web services certainly hasn't lived up to the hype that we were hearing a few years ago," Davenport said. "It's kind of merged into middleware where most people can't really see it." (Robert Weisman)
EntertainmentHOT: Digital music stores and players
NOT: Music file sharing Popular music has become a popular business on the Internet.
Downloaded songs, the scourge of the music industry when they were free, have gone legitimate. With the industry's support, some of the biggest computing and Internet companies have launched music-download stores and portable digital-music players.
In the coming months promotions for digital music stores by Apple Computer Inc. and RealNetworks Inc. will appear in Super Bowl television ads, on bottles of Pepsi, and on cases of Heineken beer.
Other big players in the digital-music race include Wal-Mart Stores Inc., Dell Inc., Roxio Inc.'s Napster 2.0, and Microsoft Corp., whose technology powers many of the services.
Apple has taken the lead with its iTunes Music Store and iPod player. Strong iPod sales boosted Apple's revenue in its fiscal first quarter to the highest level in four years, the company said in its earnings report last week.
Downloading and sharing songs through file-sharing programs like Kazaa became a dangerous pastime in September when the recording industry began filing lawsuits against hundreds of users for copyright infringement. Several surveys by research firms suggested that file-sharing activity slowed after the Recording Industry Association of America launched its legal campaign. In the most recent poll, taken by the Pew Internet & American Life Project in November and December, only 14 percent of respondents said they downloaded music (through file-sharing networks or for-pay services), compared to 29 percent in the spring. "People's calculation of risk changed after the RIAA suits," said Lee Rainie, the director of the Pew project, based in Washington.
But there's also evidence that people haven't stopped swapping music -- they've just stopped admitting it. The NPD Group, a research firm, said Friday that usage of peer-to-peer networks rose in November and again in December after six months of declines. And BigChampagne, another research firm, said the network that houses Kazaa, iMesh, and other file-sharing programs hosted an average of 4.82 million people at any given time in December 2003, a 29 percent increase from the 3.74 million people in December 2002.
Still, songs purchased from digital music stores helped slow the recording industry's four-year sales slump. Overall music sales in the United States declined 0.8 percent last year from 2002, according to Nielsen SoundScan. Without purchased downloads, sales would have fallen 4 percent.
Yet even the most successful download service, Apple's iTunes Music Store, is dwarfed by the traffic on file-sharing networks. Apple executives have said they hope to sell 100 million songs in the store's first year. That's only 10 percent of the roughly 1 billion songs swapped on file-sharing networks each month, said BigChampagne CEO Eric Garland. (Chris Gaither)
TelecommunicationsHOT: Voice over Internet protocol
NOT: Traditional optical networking After years of hype, voice over Internet protocol has suddenly emerged as telecom's flavor of the month, giving a big boost to companies like Sonus Networks Inc. of Westford, Nortel Networks Ltd., and smaller start-ups such as Telica Inc. of Marlborough.
Vendors and technologists have argued for years that carrying phone calls in the same digital packet format as e-mail and Web pages would slash costs and enable a legion of new enhanced services. VOIP throws thousands of calls onto one digital pipe, making it much cheaper to carry calls and build new messaging and conferencing services around voice carriage.
Big phone companies such as Verizon Communications Inc., AT&T Corp., and MCI have been using VOIP in the core of their networks for years. But this year they believe the technology is reliable enough to roll out directly to retail customers.
Verizon has also tapped Nortel for the first phase of what could be a 10-year, $5 billion project to convert the nation's largest phone network to full VOIP operation.
Aside from some niche plays in IP telephony and wireless, most players in traditional optical networking are continuing to face a gloomy market depressed by continued rampant overcapacity in long-haul telecom capacity stemming from the 1998-2001 binge on telecom spending. Sycamore Networks Inc. of Chelmsford got a sorely needed boost earlier this month when the Pentagon named Sycamore a vendor for a planned $900 million upgrade of worldwide military communications networks, as did terabit-router maker Avici Systems Inc. of Billerica from its designation by Nortel as a "preferred partner" for core network gear. But both companies, and others looking to boost optical networking from current 10-gigabit to 40-gigabit service, face a generally depressed market for some time.
"40-gig optics, I am seeing nothing on that," said venture capitalist Bob Fleming of Prism Venture Partners in Westwood. (Peter J. Howe)
SemiconductorsHOT: Microchips
NOT: Athlon 64 chips You can see the steam rising from the roofs of New England companies involved in the microchip business and not just because it's cold outside. After a long downturn, the semiconductor business is truly on the upswing.
The present surge isn't due to a single red-hot product category, according to Vincent Valentine, a chip equipment analyst at the Boston research and investment firm Fechtor, Detwiler & Co.
"There's not really just one killer app this time," said Valentine.
Cellphones with built-in cameras, camcorders, and flat-panel TV sets all need chips. And of course, so do personal computers, which according to research firm IDC Corp. sold in 2003 at the fastest rate in three years.
Better times are generating better numbers at a couple of local firms that make equipment used in chip manufacturing. Boston's Teradyne Inc., a leading producer of chip testing gear, lost $11.5 million last quarter or 6 cents a share, compared to a $423.8 million loss in the same quarter of 2002. And this quarter, Teradyne expects to turn a profit of as much as 18 cents a share, thanks to surging demand. Varian Semiconductor Equipment Associates Inc. of Gloucester, which reports its first-quarter numbers later this month, has raised estimated earnings for the quarter from 8 cents a share to 11 cents.
Around the world, demand for electronic devices has fueled a new appetite for the chips that drive those devices. The Semiconductor Industry Association's November figures showed a 26 percent increase from the year before. Taiwan's TSMC, the biggest contract chipmaker, had record full-year profits for 2003. And Intel Corp. maker of the vaunted Pentium chip line, last week reported the highest quarterly revenues in its history and unexpectedly strong earnings of 33 cents a share.
Intel's archrival, Advanced Micro Devices Inc., hasn't reported its fourth quarter yet, but the company lost 9 cents a share in the third quarter and is expected to manage just 4 cents a share of profit for the last three months of 2003. Meanwhile, AMD's Pentium-killer, the Athlon 64, shows no sign of challenging Intel's market dominance, despite its ability to run today's standard 32-bit software, as well as a new generation of 64-bit programs.
It's still early, of course. The Athlon 64 only came to market in September, inside relatively high-priced PCs.
"Not everyone buys at the price point at which the Athlon 64 was introduced," said AMD product manager John Crank.
Since then, cheaper versions of the chip have been introduced, allowing PC makers to offer it in lower-cost models.
But which PC makers? Hewlett-Packard Co. and eMachines Inc. are the only major brands that offer Athlon 64 computers. AMD CEO Hector Ruiz has accused Intel of intimidating firms like Dell Computer Corp. to keep them from adopting the Athlon 64. Whatever the truth, there's no denying that most computer makers have shunned the AMD chip.
Other obstacles loom. In principle, the Athlon 64 should be able to handle massive computing jobs like video editing and high-end gaming much better than a 32-bit Pentium chip, but it won't live up to its potential until it's loaded with 64-bit software. But Microsoft Corp.'s planned 64-bit version of its Windows operating system, which was supposed to be available by now, has been delayed until late this year. Other 64-bit software is also lagging. In the interim, Athlon 64 machines can run standard Windows software, but so can any Intel box.
That means there'll be no killer app -- no compelling reason to switch to AMD -- anytime soon. For the Athlon 64, the cold snap is likely to linger quite awhile.
