Valleys and peaks of NASDAQ

The economic engines of Ireland and Western Europe are not driven by the computing industry. We aren’t in Silicon Valley and this isn’t the Silicon Bog, Fen or Glen. It’s not driving us, we are driving it.

Truth be known, we’re a pretty diverse lot behind the wheel. We can boast increasing service business and a healthy construction sector. We rue the decreasing manufacturing element and the generous burden of state-connected and tax-supported ‘enterprise’. We’ve a population that is, in general, doing all right. Business is waiting with some impatience for the post 911 slump and post war boom to take off in the wake of the euro launch so that we can cheerfully buy our kids those EUR150 designer trainers they are whining about.

To the extent that you subscribe to that description of Right Here — Right Now, you might take a peek at the trends in computer sales in these parts and find it indicative of what is coming our way, business-wise. As the song says, the valleys and peaks of NASDAQ are akin to those rhyming western landforms. There are cues in the herd-like up and down movements of your fellow business persons and IT share prices that point to where the best value in computing lies at the moment. And hints about where the next competitive edge is coming from.

IDC, known and loved as a reader of IT entrails, says that the Western European servers market is showing signs of a reanimated climb. This, I feel, is a pretty good indicator of business IT activity. Not many private individuals maintain server-centric home networks, let alone expand them with new hardware. IDC’s latest Quarterly Server Tracker showed that 1st quarter spending was $3.3bn which was actually a slight decline of 1.9 per cent against the same quarter last year. However, on the bright side, this was the fifth quarter in which the annualised decline slowed.

This is good news? Reflect on the plummeting cost of commodity server hardware. The unit shipment in 1Q’03 sales were up a healthy 8.9 per cent over the previous year. The average value of servers sold in Western Europe was $11,000 — down about 10 per cent against the same quarter a year ago which makes a decline in total cost of the servers sold of lesser impact.

IDC’s European Systems Group is buoyant about the newly evident stability of the server market, but no sign (still) that big iron is being switched off. I consider this a hallmark of new business growth.

Proof of the pudding

Thomas Meyer, manager of IDC’s European Server Group, felt this was the proof of the pudding for what I have been trumpeting for yonks: ‘commoditisation of hardware and the trend towards standards-based computing are often hyped but the reality is clear: this illustrates a continued shift in the balance of the market towards lower-priced machines and reductions in server hardware prices across the board’.

IBM’s still on top and grew by 13 per cent year-on-year. However, in the unit game, HP shipped almost two and a half times more servers than Big Blue, thanks to their consolidation of that little Texas business they engulfed. IDC said that 40 per cent of the Western Europe servers were HP’s. Sun was stuck in third place (with much higher per unit price and a much more powerful server portfolio) ahead of local hero Fujitsu Siemens. Stock market darling Dell’s revenues from servers grew to a 6 per cent share of the pie. Again, that translated into a much larger share of units sold.

A ferry boat ride away, the UK’s server units were up 12 per cent and the amount spent was down 11.7 per cent year-on-year. Fair weather for the future of Irish business ahead?

The fate of pocket-able and handheld computing devices is symptomatic of the overlay between the economic and innovation cycles. Palm got bought by 3Com. The founders jumped ship and founded Handspring. 3Com spun off Palm, which just last month acquired Handspring. Palm gets a mature wireless PDA running its very own operating system and no longer has to worry about Handspring grabbing market share with desperation pricing.

Palm gets its innovative founders back on-side and we can look forward to great personal computing products in the months ahead — like the new Treo 600 and a commanding lead over the Pocket PC brigade in enterprise computing integration.

When the going gets tough, competition isn’t healthy between small companies with similar game plans… especially if there is a big bruiser waiting until they’ve bloodied each other sufficiently to come in and steal the pot.

Plot those handheld events against the NASDAQ and you will see interesting correlations between the general business economy and innovation. Another indication is the stirring of the venture community.

Things are looking up in terms of finance for innovation. They are not up 1998-style, but are nonetheless far from the toes-over-the-window-ledge outlook of 2002. According to Tornado Insider, a European venture deal watcher, one week in mid-June saw a EUR53.5m flow to tech biz. It’s an increasing trend.

Pushing Big Macs

With the management of way-out New-Information-Economy dot coms pushing Big Macs across stainless counters, the ebbing and flowing of venture capital will bear a much stronger correlation to the appearance (and persistence) of products that can play a meaningful role in your business.

According to Tornado Insider, software investments accounted for 50 per cent of that total, distributed across three deals. The lion’s share, EUR16.7m, went in a second round boost to the Swedish Open Source database management company, MySQL. A couple of French companies, Xiring and RealEyes 3D secured their first round of financing. Generic Internet investment show that non-differentiated ‘net’ funding is passing its sell-by date while wireless is, to no one’s surprise, the hot spot.

Innovation flows out of some of the same holes that money disappears into. Harnessing the next wave of innovation is key to finding an IT competitive edge. There’s innovation and there’s ‘innovation’, however.

It seems that Microsoft’s redefinition of ‘innovation’ isn’t the only kind left in the world, to my intense relief. But while the rising tide is lifting smaller boats, the accumulated brickbats absorbed by larger computing companies over the course of the downside of the cycle are producing other changes that may reach out and tangle your IT plans.

Computer seers have been ranting on about consolidation for about 20 years according to my fading recollections of the birth of the PC era. Innovation and start-ups flourish in the sweet times and then mergers and acquisitions ‘happen’ when the pH of the economy heads towards 1. Anybody remember Conner hard disks? They were the best around… Conner got bought by its biggest rival Seagate some years ago. Sic transit Gloria.

The M&A hurly-burly doesn’t all take place at the lightweight end of the computing scale and it isn’t quite over yet. There is an inertial effect to take into consideration when plotting out the end of a cycle. Witness the volcanic pyrotechnics and earth tremors as the tectonic plates of enterprise software grind together in the Oracle/PeopleSoft/JDEdwards saga.

Elastoplast

Just as PeopleSoft thought that it had found an Elastoplast for its declining license revenues in the acquisition of JD Edwards, along comes the market leader Oracle to stem a union that could have potentially surpassed them in the business application market. Oracle is now intent on launching its own takeover bid for PeopleSoft and is going over the head of PeopleSoft’s management (which contains lots of ex-Oracle execs) and appealing directly to the shareholders with a huge and growing cash offer. On the heels of the SCO-IBM complication, corporate users scarcely needed this worry.

While space (and doubtless reader fatigue) prevents a full blow-by-blow recount of the antagonist’s thrusts and parries (or the manifold strengths and pitfalls inherent in those respective company’s products, services and strategies), I take this (and the SCO-IBM tiff) as the final thrusts of the now departing slump. And for those of you on the cusp of deciding to invest large sums in JD Edwards or PeopleSoft software, I wish you the best of luck.

We may be looking ahead to the sunlit uplands of the next economic cycle, but the muddy remnants of the last one are complicating our climb out of the valley, just like a prolonged stroll across McGillycuddy’s Reeks.

She was a systems analyst
For a dot com company
She said “You think because we kissed
I’ll be yours eternally
I’ll sign another pre-nup
And we’ll merge our PLCs
That’s why most girls go belly-up
In this economy

But when it comes to a jump start
Your forecast’s pretty bleak
The NASDAQ goes by dips and starts
Like McGillycuddy’s Reeks

Taken from: “My Ride’s Here” © Warren Zevon and Paul Muldoon