Sync.: The Future of Technology, Media & Telecoms

SYNC.
Issue 64
Global Trend Forecast, 2014
The Future of Technology, Media & Telecoms

Volume III
July 2013
Cyrus Mewawalla
cyrus@researchcm.com
+44 (0) 20 3393 3866
www.researchcm.com
Authorised and regulated by the Financial Conduct Authority
CM Research
22 Upper Grosvenor Street
London W1K 7PE
July 2013
(Vol. III)
Contents
EXECUTIVE SUMMARY
PART I: HARDWARE
TechnologyHardware:ExecutiveSummary
Connecteddevices
ConsumerElectronics
10
ComponentMakers
12
PCs,Servers,StorageandNetworking
14
TelecomEquipment
16
Semiconductors
18
PART II: SOFTWARE
20
TechnologySoftware:ExecutiveSummary
21
ApplicationsSoftware
22
InfrastructureSoftwareandtheCloud
24
SecuritySoftware
26
VideoGameSoftware
28
ITServices
30
www.researchcm.com 2
(Vol. III)
July 2013
PART III: INTERNET & MEDIA
32
Internet&Media:ExecutiveSummary
33
Internet(ecommerce)
34
Internet(socialmedia)
36
Advertising
38
Film&Television
40
Publishing
42
PART IV: TELECOMS
44
TelecomServices:ExecutiveSummary
45
Cable&SatelliteOperators
46
TelecomOperators
48
APPENDIX 1: M&A TRENDS
51
APPENDIX 2: ABOUT CM RESEARCH
54
APPENDIX 3: RECENT PUBLICATIONS
55
July 2013
(Vol. III)
Executive Summary
In this report, the third volume in our Global TMT Trend Forecast series, we identify the major disruptive technologies that we will see in
2014 and predict how they will impact the worlds largest technology, media and telecom (TMT) companies. Our objective is to offer
investors and industry executives a comprehensive trend forecast for the global TMT sector over the next 12 months.
To set the scene, the chart below shows the relative market performance of 17 TMT sectors since the beginning of 2008, benchmarked
against the S&P 500 index. Future performance will be largely impacted by the trends outlined in this report.
Over the last five years internet companies, software developers and data centres have been the most prominent outperformers
whilst consumer electronics companies, telecom equipment makers, publishers and telecom operators have underperformed.
Global TMT sector: Cumulative 5 year share price performance
200%
2008
150%
2009
2010
2011
2012
2013
100%
50%
0%
50%
100%
Hardware
Software
Internet & Media
Telecoms
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research. Bars show the cumulative sector performance from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013 of a selection of stocks that we believe are
bellwethers for each sector aggregated on an equal weighting basis. Note: Whilst the performance of every sector is shown over a 5 year period, the performance of social media is shown over a two year period as most social media companies were not listed 5 years ago.
(Vol. III)
July 2013
Here are some of our conclusions:

Consumer electronics: Wearable computing devices and internet TV will be the big consumer electronics products of 2014. Both
are likely to strengthen the dominance of the bigger internet ecosystems run by Apple and Google. But the Asians are fighting back.
Samsung may yet revive Bada and LG has bought HPs WebOS specifically for its smart TV offering. In addition, a host of new
mobile ecosystems from Huawei, Jolla, UCweb and Mozilla have recently entered the market, threatening this cosy duopoly.
Telecom equipment: Software defined networks (SDNs) will soon threaten the dominance of networking equipment leaders like
Cisco and Juniper Networks. But as mobile technology moves to an all-IP environment, leading providers of fixed IP networking
equipment such as Cisco will move into the wireless equipment market thus far dominated by Ericsson.
Semiconductors: Cheaper smartphones and tablets will soon flood the market, many made in China, shifting the balance of power
in the chip industry from expensive US chipmakers like Qualcomm to cheaper Chinese ones, like MediaTek and Spreadtrum.
3D printing: The market for 3DP services grew 29% in 2012 to reach $2.2bn worldwide. Whilst Foxconns Terry Gou describes 3DP
as a gimmick, we believe it could transform manufacturing, hasten the onshoring of production and shorten product development
cycles. 3D Systems and Stratasys have seen their shares rise already but CAD software firms like PTC and Autodesk could be next.
Software: Apple and Google pioneered the internet ecosystem. Now the race is on to build software ecosystems that include ERP
platforms, Big Data analytics, cloud and cyber-security. IBM, SAP, Oracle and Microsoft will be the main predators.
Cloud: As IT infrastructure moves into the cloud, virtualisation products act as the gateway. Niche players like VMware and Citrix
Systems will face fierce competition from Microsoft. Meanwhile, WAN optimisation players like Riverbed Tech help move data faster.
E-commerce: Maps and mobile payments are the new battlegrounds in the war for supremacy of the mobile internet.
Advertisers: Ads are going mobile. Google has a 55% share of the $16bn global mobile ads market. If Googles platform dominates
internet TV as well, traditional advertisers will find themselves negotiating with the same near-monopoly in all their markets.
Film & Television: TV doesnt work without content. As technology giants rush to develop their own versions of the next internet TV
platform, they will bid up the price of popular content. Stellar performers like Disney and Time Warner may yet see more upside.
Publishing: Whilst DMGT has shown how smart management can turn around an incumbent publisher in a declining industry, the
overall outlook for publishers remains bleak.
Cable & Satellite: Far more prepared for the digital world than telecom operators ever were, cable and satellite operators have a
good chance of avoiding being eaten alive by Apple and Google by investing in independent platforms like FanTV.
Telecom operators: As voice, messaging and internet access revenues decline, operators must act fast to avoid disaster. But we
argue that competition, politics and the evolving scope of internet regulation will impact share prices more than operator strategies.
July 2013
(Vol. III)
Part I: Hardware
July 2013
(Vol. III)
Technology Hardware: Executive Summary

Here is a summary of our dominant themes for the technology hardware sector over the next 12 months:
Connected Devices
Wearable computing devices such as Sonys SmartWatch or Google Glass will be the next big thing to follow smartphones and tablets.
They will help better target commercial services to us by tracking more of our personal data.
Consumer Electronics
Internet TV is likely to be the next big consumer product, but it is too early to pick a winning platform as yet. More generally as was the
case with smartphones and tablets consumer electronics hardware makers are seeing their profits siphoned off by software ecosystems.
Asia is fighting back: Samsung may yet revive Bada and LG has bought HPs WebOS specifically for its smart TV offering.
Component Makers
3D printing could lead to the democratisation of manufacturing, changing how we design, manufacture and repair virtually everything we
use today from medical devices to aircraft parts to houses. 3DP will shorten product development cycles and facilitate the onshoring of
production.
PCs, Servers, Storage and Networking
The shift from the PC generation to the cloud generation is changing the way data is stored and accessed. This shift has been hastened
by the flop of Windows 8. Storage technology is moving to solid state drives (SSD), a more expensive but faster version of storage than
traditional hard disk drives (HDD). Software defined networks (SDNs) will soon threaten the dominance of networking equipment leaders
like Cisco and Juniper Networks.
Telecom Equipment
As mobile technology moves to an all-IP environment, leading providers of fixed IP networking equipment such as Cisco will move into the
wireless equipment market thus far dominated by Ericsson.
Semiconductors
Cheaper smartphones and tablets will soon flood the market, many made in China, shifting the balance of power in the chip industry from
expensive US chipmakers like Qualcomm to cheaper Chinese ones, like MediaTek and Spreadtrum.
July 2013
(Vol. III)
Connected devices
Dominant theme: Wearable computing devices will be the next big thing to follow smartphones and tablets.
Outlook: China is set to dominate shipment numbers for smart connected devices for several years, heralding an era of cheap
phablets where Huawei, ZTE and Lenovo may edge out western rivals.
Theme
Whats happening?
Our conclusions for the sector
Leaders
Laggards
Wearable
devices
Wearable connected devices such as

Sonys SmartWatch, Google Glass and
medical devices will be the next big
product cycle after smartphones.
Wearable devices create more opportunity

to collect personal data, benefitting the
two dominant mobile ecosystems that are
best placed to collect and sell this data.
Apple, Google
Alibaba, Amazon,
Baidu, Microsoft,
RIM, Sony, Nokia,
LG, Tencent
Apple copycats
The Apple business model of owning

hardware, software and an apps-based
ecosystem is being cloned by rivals.
More software companies will start making

their own hardware. The losers will be the
hardware-only device manufacturers,
whose margins will be squeezed.
Apple, Google,
Microsoft, Baidu, Alibaba,
Tencent, Huawei,
Facebook, Amazon
Samsung, HP, Dell,

LG, Sony, RIM, Acer,
Asustek, HTC, Nokia
New mobile
ecosystem
entrants
New entrants are invading the market for

mobile ecosystems, challenging Apple and
Googles dominant position.
To enter this market, some have

developed their own mobile operating
systems. Others have developed mobile
web browsers or mobile search platforms.
Jolla, Mozilla, Opera,

Huawei, Baidu, Qihoo 360,
Facebook, Tencent,
Alibaba, Amazon, Easou
Apple, Google
Cheap
smartphones
Chinas smartphone shipments hit 78m in

Q1 2013, up by 117% compared to Q1
2012 and representing 36% of global
shipments of 216m for the quarter.
As China goes mass market, average

prices will fall and Chinese manufacturers
will edge out western rivals. Android will
remain popular for lack of competition.
Google, Samsung, Huawei,

ZTE, Lenovo, Xiaomi
Apple, Microsoft,
Nokia, HTC, RIM, LG
Litigation
As Apple and Googles ecosystems grow,

the risk of patent litigation and anti-trust
litigation against them increases.
The risk is that management becomes

distracted by litigation, taking their eye off
innovation.
Huawei, ZTE, Samsung,

Facebook, Amazon,
Xiaomi
Apple, Google
Conflicts of
interest
Google and Microsoft have decided to

enter the hardware market, creating
conflicts for customers of their software.
Apple doesnt have this conflict because it

doesnt license out iOS.
Apple
Google, Microsoft
July 2013
(Vol. III)
Outlook
Today the world has 2.8bn internet users. Of these, at least 1.5bn access the internet wirelessly. Thats up from 1.1bn a year ago. The next
billion users are all likely to use their smartphone as their primary means to access the internet. Mobile now makes up 16% of all internet
traffic. This internet traffic is monetised most effectively by those with the largest mobile ecosystems. So far Apple and Google dominate,
with a joint 92% market share of the mobile operating system market.
But with China set to remain the worlds biggest mobile internet market for the foreseeable future it is already home to 29% of the worlds
mobile internet subscribers two things will change. Cheaper smartphones will flood the market, benefitting local manufacturers such as
Huawei, ZTE and Xiaomi at the expense of dearer western rivals. And Google Androids hold on the low-end operating software market
may be side-lined by home-grown software from the likes of Huawei, Tencent, Baidu or Alibaba.
Connected devices: Cumulative 5 year share price performance
200%
150%
2008
2009
2010
2011
2012
2013
100%
50%
0%
50%
100%
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research

Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
July 2013
(Vol. III)
Consumer Electronics
Dominant theme: Internet TV is likely to be the next big consumer product, but there is no clear winner for investors as yet.
Outlook: As with smartphones and tablets, consumer electronics hardware makers are seeing their profits sucked out by
software ecosystems. Asia is fighting back: Samsung may yet revive Bada and LG has bought HPs WebOS.
Theme
Whats happening?
Leaders
Laggards
Internet TV
No technology company has yet mastered

the three pre-requisites for (enjoyable)
internet TV: a simple electronic program
guide, a low latency user experience, a
vast back-catalogue of licensed content.
Each player is attacking TV from a different

angle. Apples strength is iTunes and iOS;
Googles YouTube and Android; Microsoft and
Sony have their games consoles. Streaming
specialists such as FanTV also stand a chance.
Apple, Google,
Microsoft, Fanhattan,
Roku, Boxee
Sony, Samsung, LG,

Nintendo
Slaves to the
ecosystem
Consumer electronics are fast becoming

bolt-on accessories for the internet
ecosystems controlled by the second
screens of Apple, Google and Microsoft.
Once-great consumer brands are being reduced

to low margin subcontractors for the big internet
ecosystems of Apple, Alibaba, Baidu, Google
and Facebook.
Amazon, Alibaba,
Apple, Facebook,
Google, Microsoft,
Netflix
Samsung, LG,
Nintendo, Nokia,
Philips, Sony, Canon
Robotics
A new generation of consumer products

based on robotics is emerging, including
driverless cars, hands-free vacuum
cleaners and personal companion robots.
Three types of beneficiaries are emerging: robot

manufacturers like iRobot, motion sensor
developers like Microsoft Kinect and operating
software developers like Apple and Google.
iRobot, Microsoft,
Apple, Google
On-shoring
More technology companies are onshoring manufacturing of their latest high

tech products. Apple assembles iMacs in
the US; Google will manufacture Glass in
California and the Moto X in Texas.
Selected manufacturing clusters that moved to

Taiwan, Korea and China in the last decade
may now move back to the US. Manufacturers
like Lenovo and Hon Hai will be obliged to open
plants in the west, raising costs.
Apple, Google
Lenovo, Huawei, Hon

Hai, Samsung
Screen
technology
While Samsung and LG have massively

overspent on developing OLED displays
Sony has invested more cautiously in 4K
technology.
Sonys 4K TVs will be priced between LCDs

and OLEDs and may give Sony an advantage,
especially if it mandates its film division to
produce 4K films.
Sony
Samsung, LG
July 2013
(Vol. III)
Outlook
As the share performance chart below aptly illustrates, only two of the worlds leading consumer electronics companies are trading at
higher valuations than five and half years ago. They are Apple and Samsung. The consumer electronics sector has become polarised by
the internet. The big mobile internet ecosystems Apple, Google, Microsoft, Baidu and Tencent are sucking all the profits out of
hardware manufacturing, reducing hardware-only makers to low-margin producers of commodity products. The next big product cycle for
the industry is internet TV. Here too the lions share of the profits is destined to go to internet ecosystems rather than hardware makers.
Samsung, the most profitable hardware-only maker, owes its manufacturing prowess to a strategy of relentless hardware innovation. It is
likely to hold that lead with its new hardware innovations such as flexible screens or eye-scrolling technology. But without its own software
ecosystem it tried and failed with Bada it is doomed to fail ultimately. LG Electronics, conscious of this dilemma, purchased WebOS
from HP for use in its smart TV platform. If it makes the most of this opportunity LG could become the first Asian player to compete
successfully on a software level with Apple, Google and Microsoft, giving it a slim chance to claim a decent slug of the profits of the
internet TV market.
Consumer electronics: Cumulative 5 year share price performance
200%
150%
2008
2009
2010
2011
2012
2013
100%
50%
0%
50%
100%

July 2013
(Vol. III)
Component Makers
Dominant theme: 3D printing could lead to the democratisation of manufacturing, changing how we design, manufacture and
repair virtually everything we use today from medical devices to aircraft parts to houses.
Outlook: Consumer electronics devices are increasingly controlled by two dominant operating systems: iOS and Android now
account for over 90% of smartphones and tablets shipped worldwide. Successful component makers will need to align their
businesses more and more to these software ecosystems.
Theme
Whats happening?
Leaders
Laggards
3D printing
In 2012, the market for 3D printing

products worldwide grew 29% to$2.2bn,
according to Wohlers Associates. Used
primarily for prototyping, 3DP could soon
be used for manufacturing components.
Foxconns Terry Gou recently called 3D printing

a gimmick. But whether Mr. Gou likes it or not,
3DP is coming to mass production. Everyone
from material providers like Nitto Denko to
assemblers like Foxconn will be impacted.
3D Systems,
Stratasys
Too early to say
Flexible displays
New display technologies will soon give us

screens that have rigid curves built into
them or that are bendable by the user.
So far Samsung appears to be the clear leader,

which is bad news for arch rival Apple.
Samsung
Apple, Google, LG
Display, Sony,
Universal Display
Apple supply
chain
Apple is diversifying its supplier base

away from Samsung. It is also playing a
divide and rule game between its top two
assemblers Hon Hai and Pegatron.
TSMC could displace Samsung in processors

and LG Display and TPK could do so in touch
screens. For its main assembly suppliers, a
pricing war could send margins further down.
TSMC, TPK, LG
Display
Hon Hai, Pegatron
Robotics
As Chinese labor costs rise and industrial

unrest grows, more Asian component
makers will look to industrial robots to
control their cost base.
Foxconn leads the charge with its plan to roll

out 1m Foxbots. But its investment may be
delayed by falling profits as it lowers margins to
compete with Pegatron.
Hon Hai (Foxconn),

ABB, Fanuc,
Kawasaki
Slaves to the
ecosystem
As industry profits move from hardware to

software, component makers need to
position themselves accordingly.
Increasingly Apple, Google and perhaps of

Alibaba and Baidu will be the most sought
after supply chains, rather than, say, Samsung.
AAC Technologies,
Goertek
July 2013
(Vol. III)
Outlook
Five years after the start of the financial crisis, two thirds of the component makers in our stock universe below are still trading at valuations
below those at 1 January 2008.
As profits in the consumer electronics industry shift from hardware makers to internet ecosystems, the profitability of component makers
will be linked more and more to how successfully they compete for coveted places in the supply chains of the leading operating software
developers such as Apple and Google rather than the leading hardware manufacturers such as Samsung. AAC Technologies which
makes miniature microphones used in the iPhone and iPad is a case in point.
Component makers: Cumulative 5 year share price performance
350%
300%
2008
2009
2010
2011
2012
2013
250%
200%
150%
100%
50%
0%
50%
100%

July 2013
(Vol. III)
PCs, Servers, Storage and Networking
Dominant theme: SDNs will soon threaten the dominance of networking equipment leaders like Cisco and Juniper Networks.
Outlook: Microsofts disastrous Windows 8 launch has had an adverse impact on the hardware sector. Outlook remains bleak
for PC/ notebook makers and HDD storage; rosy for servers, tablets, SSD storage and niche networking products.
Theme
Whats happening?
Leaders
Laggards
Software defined
networks (SDNs)
SDNs will soon threaten the dominance of

networking equipment leaders like Cisco.
Competitive power in the networking sector is

moving from hardware to cloud software.
VMware, Netflix,
Amazon, Google
Cisco, Juniper
Networks
Cloud
Production is shifting from PC-based

devices such as laptops to cloud-based
devices such as servers and tablets.
Outlook continues to look bleak for PC and

notebook makers; rosy for servers, tablets, SSD
storage and niche networking products.
Samsung, Asustek,
ARM, Quanta,
Lenovo, Google
Intel, Microsoft
Death of
Windows 8
As Samsung and Asustek issue tablets

with dual Windows8/Android operating
systems Windows decline is assured.
In the PC/tablet sector competitive power will

shift from Microsoft not only to Apple and
Google but also to hardware makers.
Apple, Google,
Samsung, Lenovo,
Asustek
Microsoft
Storage
technology
As PCs decline and tablets rise, storage is

moving from hard disk drive (HDD) to solid
state drive (SSD) technology.
The leading HDD players argue they have

mitigating strategies, but the speed of the
technology shift could catch them out.
OCZ, Stec, Intel,

Sandisk
Seagate, Western
Digital
Open source
storage
Open source storage hardware from the

likes of Backblaze shows signs of taking
off, threatening leading storage companies
Open source solutions reduce barriers to entry

and exert downward pressure on margins. EMC
and NetApp are first in the line of fire.
Backblaze, RedHat
EMC, NetApp, HP,

Dell, IBM, Oracle
Micro servers
Micro servers cheap, low-power servers

represent a fraction of server shipments
but are gaining market share in data
centers, especially for cloud services.
ARM-based chips are likely to power many

micro servers and could seriously challenge
Intels domination of the high-growth data center
server market.
ARM
Intel
WAN
optimization
Data centers are becoming increasingly

fragmented. That makes response speeds
a differentiating factor.
A handful of companies specializing in

technologies that optimize wide area networks
making data flow faster should benefit.
Brocade, Fusion-IO,
SGI, Riverbed
Technology
July 2013
(Vol. III)
Outlook
In Q1 2013, PC shipments declined 14% year on year, much worse than expected, and largely down to the poor reception for Windows 8.
Lenovo fared better than any other PC maker. In the short term, Microsofts troubles may give hardware makers slightly more competitive
power as they play Microsoft off against Google Android Indeed Samsung and Asustek have already started, by releasing dual operating
system tablets. IHS expects hard drive (HDD) sales to fall 12% in 2013 to $32.7bn as solid-state drives (SSDs) march ahead. Last
quarters worldwide enterprise expenditure figures for the storage services sector generally have also been lacklustre.
Looking ahead, we see continued turmoil in the PCs, Servers, Networking and Storage sectors. Storage market leaders like EMC and
NetApp will see threats both from open source and a host of new entrants into the sector. But one problem that remains in the networking
and storage sectors is data latency. Niche players in networking technology who can make data flow faster stand to benefit. Three names
immediately spring to mind: Brocade, Riverbed Technology, and Fusion-IO.
PCs, Servers, Storage and Networking: Cumulative 5 year share price performance
150%
100%
2008
2009
2010
2011
2012
2013
50%
0%
50%
100%

July 2013
(Vol. III)
Telecom Equipment
Dominant theme: As mobile technology moves to an all-IP environment, leading providers of fixed IP networking equipment
such as Cisco will move into the wireless equipment market thus far dominated by Ericsson.
Outlook: The near term outlook for telecom equipment will be dominated by an increasingly vicious US-China dispute over
state-sponsored cyber-attacks. Trade embargos and subsequent retaliation measures are likely to impact Huawei more than
Cisco and Ericsson.
Theme
Whats happening?
Leaders
Laggards
Mobile moves to
IP
4G is the first mobile standard to be all-IP.

Whereas 3G technology involved
proprietary standards, 4G is more open.
As mobile moves to IP, fixed IP networking

giants like Cisco and Juniper will find it easier to
challenge 4G leaders like Ericsson.
Cisco, Huawei, ZTE,

Juniper Networks
Ericsson, Alcatel
Lucent, Nokia
Siemens
Trade wars
Telecom equipment is the first line of

defense in cyber-warfare. Huawei and
ZTE are increasingly banned from bidding
for western telecom contracts on national
security grounds.
As cyber-warfare threats grow, protectionism in

the telecom equipment market is likely to rise.
Europe may follow the USs lead, supporting
home-grown telecom equipment makers. China
may retaliate.
Alcatel Lucent,
Ericsson, Nokia
Siemens, Cisco
Huawei, ZTE
LTE/Wi-Fi
integration
By 2014, mobile traffic will account for

30% of total internet traffic, up from 12% in
2012, according to StatCounter. New
technologies that allow seamless roaming
between 4G and Wi-Fi will allow offloading
of heavy data users from expensive 4G
networks to cheaper Wi-Fi networks.
In hardware, Cisco is making the biggest push

for the combined cell market. In chips,
Qualcomm, Broadcom and Marvell stand to
benefit. In corporate services, the likes of Aruba
Networks, which provides secure Wi-Fi
services, will see a growing market.
Aruba Networks,
Cisco
Ericsson
M&A
Many Western telecom equipment makers

are nursing heavy losses and may be
forced to sell assets.
Nokia Siemens has been rumored to be up for

sale and Alcatel Lucent may also be a bid
target.
Nokia, RIM
Alcatel Lucent
Patents wars
Spurred by Apples patent war, the value

of the industrys patents is rising.
Expect selected patent portfolios of weaker

competitors to be put up for sale.
July 2013
(Vol. III)
Outlook
Much of the telecom equipment sector, as the chart below illustrates, is still trading at pre-2008 valuation levels. Note that Huawei the
largest telecom equipment player in the world by revenues does not feature on our share performance chart below because it is privately
owned. As 4G (OFDM) technology proliferates, Huaweis lead is likely to increase for two reasons. First, the biggest problem with 4G
technology is call handover from CDMA (3G) and TDMA (GSM) technology. The best way to ensure seamless handover is to buy handsets
and network infrastructure from the same vendor. Huawei is the only vendor that currently provides an end to end product range. Second,
since 4G is an all-IP platform, Huawei, a low-cost manufacturer of fixed IP equipment, has yet another advantage. All this is bad news for
Cisco, Ericsson, Alcatel Lucent and Juniper Networks.
But politics may change the balance of power. The US has started a trade war, pointing its finger at Huawei and its alleged military
connections. Depending on how this war of words unfolds, western equipment players may be handed an advantage in western markets.
Telecom equipment: Cumulative 5 year share price performance
200%
2008
2009
2010
2011
2012
2013
150%
100%
50%
0%
50%
100%

July 2013
(Vol. III)
Semiconductors
Dominant theme: Cheaper smartphones and tablets are entering the market, many made in China, switching demand for
chips from expensive US chipmakers like Qualcomm to cheaper Chinese ones, like MediaTek and Spreadtrum.
Outlook: Chinese wireless chipmakers are best positioned for the rush to mass market phablets.
Theme
Whats happening?
Leaders
Laggards
Cheaper
smartphones
Smartphone penetration in China has

passed 15%. It should reach 50% by
2015. Huawei, Xiaomi and ZTE are likely
to gain global market share as a result.
Domestic Chinese chip manufacturers like

MediaTek and Spreadtrum will see beneficial
knock on effects, with Qualcomm being the
biggest loser.
MediaTek,
Spreadtrum
Qualcomm, Marvell,
Broadcom
Internet of things
As more devices from fridges to cars to

hospital patients are monitored on the
internet, the number of sensors around us
will explode.
Manufacturers of these sensors and the

embedded microprocessors that control them
will benefit.
Microchip Tech,
Freescale, Asia
Optical, Infineon,
Micronas, Omnivision
Apples supply
chain
Apple is reshuffling its supply chain away

from Samsung, its main smartphone/tablet
rival.
TSMC could be the biggest beneficiary amongst

chipmakers, with orders for both the A6 and A7
chipsets.
TSMC, Avago, Cirrus

Logic, Omnivision,
TriQuint, Skyworks
Intel vs. ARM
Intel is the market leader for PCs and

servers because of its unrivalled
processing power. ARM designs dominate
the mobile devices sector because of their
low power consumption. But Intel and
ARM are invading each others markets.
Intel now powers the Samsung Galaxy Tab 3

with its Atom processor, but has few other wins
in mobile. ARM, on the other hand, is moving
fast into the high-growth micro-server market for
data centers. It has recent orders from Baidu for
cloud servers. Its too early to pick a winner, but
both moves are game-changing.
Too early to say
Graphics chips
ARM and Intel are incorporating graphics

capability within their core chip designs.
Chinese chipmakers are also entering the
fray.
Competition within the graphics chips market is

heating up. Nvidia and Imagination could see
their pricing power eroded faster than expected.
MediaTek, ARM
Samsung
Imagination Tech,
Nvidia, Qualcomm
July 2013
(Vol. III)
Outlook
In 2013, Gartner estimates that 2.35bn IT devices will be shipped. Of these, 305m will be PCs and laptops, 201m will be tablets and 1.8bn
will be mobile phones. Within the mobile phone category, smartphone shipments are expected to reach 958m units this year, up from
722m last year. With connected devices being the most lucrative end market for chips, it is not unsurprising that the fortunes of many chip
companies are tied to the most profitable IT device maker, Apple. Chip companies in Apples supply chain like Cirrus Logic, Skyworks
Solutions, Omnivision, Avago and ARM saw their share prices rise with Apples until mid-September 2012, when Apples shares peaked.
Now, during the next phase of the smartphone cycle when smartphones go mass market, particularly in China it is the turn of Chinese
chip makers to rise. MediaTek and Spreadtrum are closely integrated with the supply chains of Huawei, Xiaomi and ZTE and are likely to
benefit as Chinese smartphone penetration grows from 15% to 50% (the steepest section of the typical S-shaped growth curve) over the
next three years.
Semiconductors: Cumulative 5 year share price performance
600%
2008
2009
2010
2011
2012
2013
500%
400%
300%
200%
100%
0%
100%

July 2013
(Vol. III)
Part II: Software
July 2013
(Vol. III)
Technology Software: Executive Summary

Here is a summary of our dominant themes for the Software and IT Services sectors over the next 12 months:
Applications Software
Apple and Google pioneered the internet ecosystem. Now the race is on to build software ecosystems that include ERP platforms, Big
Data solutions, cloud services, cyber-security and search functionality. IBM, SAP, Oracle and Microsoft will be the main predators.
Cloud Software
As IT infrastructure moves into the cloud, virtualisation products act as the gateway. Niche players like VMware and Citrix Systems now
face fierce competition from the bigger software houses like Microsoft.
Security Software
Our interviews with executives in the insurance industry confirm that board level of awareness, understanding and accountability structures
for cyber-threats is low. As a result, corporations have for some time been underinvesting in cyber-security assets. When a respected CEO
gets fired for mishandling cyber-risk, market sentiment will change: boards will be forced to increase expenditure on cyber-security services,
lifting earnings prospects for the cyber-security industry.
Video Game Software
The shift from console games to online and mobile games is happening faster than many expected. EA, Activision Blizzard and Ubisoft will
see their core business under attack whilst mobile-only games developers like Gameloft and Gamevil could benefit from being in the right
space at the right time. At the same time, in the short term, mobile and online games developers are losing competitive power to the big
apps platforms like Apple and the big social media platforms like Facebook and Tencent. But, in the longer term, HTML5 technology may
reverse that trend.
IT Services
The IT services industrys business model is changing: the typical customer today runs the marketing department rather than the IT
department; key vendor partnerships are shifting from ERP vendors like SAP to cloud services vendors like Salesforce; most importantly,
the industrys future as a middleman in a world where cheap, cloud-based services can be purchased directly is threatened.
July 2013
(Vol. III)
Applications Software
Dominant theme: Apple and Google pioneered the internet ecosystem. Now the race is on to build software ecosystems that
include ERP platforms, Big Data solutions, cloud services, cyber-security and search functionality.
Outlook: Large software groups, unable to innovate fast enough, will continue to acquire smaller application software houses.
Theme
Whats happening?
Leaders
Laggards
Software
ecosystems
Internet companies such as Apple and

Google pioneered the internet ecosystem.
Now it is the turn of software companies to
build their own ecosystems.
A host of emerging technology cycles are all

software based. Larger software companies,
unable to keep pace with innovation, will be
forced to acquire.
Targets: small/
medium sized
application software
companies
Acquirers: IBM,
Oracle, SAP, Apple,
Google, Yahoo,
Microsoft, Baidu
Mobile-first,
app-centric
start-ups
Smaller screens and lower customer

patience levels mean that desktop
applications have to be re-designed from
scratch to have any hope of working well
on the mobile internet.
Mobile-first, app-centric start-ups are unseating

current software leaders as the internet goes
mobile. New mobile operating systems from
Jolla (Sailfish) and mobile browsers from
Amazon (Silk) are fast entering the market.
Twitter, Jolla,
Amazon, Mozilla,
UCWeb, Opera
Apple, Facebook,
Google, Baidu,
Tencent
Cloud business
model
The success of Adobes Creative Cloud

subscription model makes it more likely
that software will move from a licensing
model to a cloud-subscription model.
If monthly subscription fees replace larger, oneoff license fees, revenues will fall in the short
term. Whilst Adobe has succeeded here, other
houses may issue profit warnings.
Adobe, Salesforce,
NetSuite, Apple,
Google, Red Hat,
VMware, Citrix, EMC
Microsoft, SAP,
Oracle, IBM
Computer aided
design (CAD)
software
The 3D printing market was worth $1.7bn

in 2012 and is growing at 30% p.a.,
according to Wohlers Associates.
3D printers are used mainly for prototyping. If

3DP technology is adopted in mass
manufacturing, the first wave of beneficiaries
will be CAD software companies.
PTC, Autodesk,
Dassault Systemes
Big Data
So far no software company has even

come close to analyzing large amounts of
unstructured data in a quick and
meaningful way.
The leaders in complex analytical engines are

IBM (Watson) and the large internet companies
that have developed complex search
algorithms.
Amazon, Baidu,
Google, Facebook,
Alibaba, IBM
SAP, Oracle
July 2013
(Vol. III)
Outlook
Three industry trends are making life uncomfortable for many traditional software companies: the move to app platforms, the move to the
cloud and the move to the mobile internet. In addition to these new dimensions, there are a myriad of emerging technology cycles
including 3D printing, robotics, software defined networks, smart TVs, cloud computing and mobile payments that are all software based.
All of this is heralding a new golden age for applications software.
Large software groups, unable to innovate fast enough, are acquiring specialist software houses. The M&A timeline charts on pages 50
and 51 illustrate the scale of the upheaval taking place in the software industry: software companies account for just 11% of the market
capitalization of the global TMT sector, by our estimates, but made up 55% of M&A transactions, by value, in the TMT sector over the last
three years.
With the exception of IBM, SAP and Oracle, many of the application software companies listed below are likely to become takeover targets
as the sector consolidates further.
Applications software: Cumulative 5 year share price performance
300%
250%
200%
150%
100%
50%
0%
50%
100%
2008
2009
2010
2011
2012
2013

July 2013
(Vol. III)
Infrastructure Software and the Cloud
Dominant theme: As IT infrastructure moves into the cloud, virtualisation products act as the gateway. Niche players like
VMware and Citrix Systems now face fierce competition from the bigger software houses like Microsoft.
Outlook: Infrastructure software stocks are the most susceptible to a dramatic fall in value during an economic downturn.
Theme
Whats happening?
Leaders
Laggards
Virtualization
Virtualization allows computing resources

(e.g. infrastructure, operating software or
storage solutions) to be deployed as and
when required, cutting corporate IT costs.
The big software houses are creating their own

virtualization products, squeezing niche players:
in 2012, VMware's virtualization share fell to
56.8%, as Microsoft's rose to 27.5%.
Microsoft
VMware, Citrix
Cloud ERP
Emerging cloud-only companies are

attacking ERP incumbents IBM, Oracle
and SAP who are encumbered by legacy
systems which cant easily switch to cloud.
IBM, SAP and Oracle acknowledge the problem

and are rapidly acquiring cloud companies. The
problem is that revenues and profits could fall
significantly during the transition to cloud.
NetSuite, WorkDay,
Salesforce
IBM, SAP, Oracle
Open source
OpenStack is the open cloud standard

used by Rackspace, HP, Dell and others.
Proprietary cloud platforms include Citrixs
CloudStack, VMwares vCloud, Amazons
AWS and Microsofts Azure.
Barriers to entry for open source cloud

platforms are low, pushing margins down.
Proprietary cloud services providers stand the
best chance of making big money.
Amazon, Citrix,
VMware, Microsoft,
EMC, NetApp
Rackspace, Equinix,
HP, Dell
Software defined
networks
Software defined networking (SDN) is an

emerging architecture for data networks.
SDNs allow software to control the
network path along which data packets
flow. In theory, this would reduce network
hardware to commodity boxes.
New standards like the Open Flow protocol are

gaining traction and may soon take SDNs from
the abstract into the mainstream. SDNs will
speed up the transition to the cloud by making
cloud services work faster and more efficiently.
The downside is that security risk rises.
Google, VMware
Cisco, Oracle, IBM,

Akamai, Juniper
Networks
Wi-Fi offloading
Mobile networks are increasingly offloading heavy data users onto Wi-Fi.
As Wi-Fi becomes a core part of corporate IT

world, Wi-Fi infrastructure firms will benefit.
Aruba Networks
July 2013
(Vol. III)
Outlook
In the short term, the big trends likely to impact investors in communications infrastructure stocks are the cloud and, particularly,
virtualisation. Microsoft, VMware and Citrix are fighting it out in the virtualization market. Meanwhile, Oracle, IBM and SAP are fighting
cloud-only ERP platforms like Salesforce, NetSuite and WorkDay by making cloud acquisitions of their own. The incumbents legacy
product base of expensive, difficult-to-implement, semi-redundant ERP systems turn customers away.
In the longer term, software defined networks (SDNs) could have a far more profound impact than the cloud. Just as internet protocol (IP)
standards made proprietary telecom equipment makers like Lucent and Nortel less relevant, so SDNs may turn todays leading IP
networking equipment makers like Cisco and Juniper Networks into commodity box makers, with all the power to control data flows
resting with software developers, using standards like the Open Flow protocol as the communication medium between these boxes. The
winners will be the communications infrastructure software companies who will be able to program the networking equipment boxes to
carry their traffic efficiently without having to invest in expensive hardware boxes.
Infrastructure software and cloud: Cumulative 5 year share price performance
800%
700%
600%
500%
400%
300%
200%
100%
0%
100%
2008
2009
2010
2011
2012
2013

July 2013
(Vol. III)
Security Software
Dominant theme: Our interviews with executives in the insurance industry confirm that board level of awareness,
understanding and accountability for cyber-threats is low. As a result, corporations have long underinvested in cyber-security
assets.
Outlook: When a respected CEO gets fired for mishandling cyber-risk market sentiment will change: boards will be forced to
increase expenditure on cyber-security services, lifting earnings prospects for the cyber-security industry.
Theme
Whats happening?
Leaders
Laggards
Corporate
awareness
levels
Several countries have launched national

security initiatives to raise cyber-security
awareness at board level, with banks and
critical infrastructure seen as the most at
risk sectors.
Until a high-profile CEO of a multinational

company gets fired for presiding over a largescale cyber-attack, boards will not take cybersecurity seriously. When they finally wake up,
demand for cyber-security services will climb.
Check Point,
Sourcefire,
Symantec, Qihoo,
Verint, Websense
Fortinet, ProofPoint,
Banks, stock
exchanges, telecom
operators, power
grids
Software
ecosystems
Apple pioneered the internet ecosystem.

Now IBM, Oracle and SAP are building
their own software ecosystems.
Larger software houses will strengthen their

cyber-security capability, especially in network
security and enterprise firewalls.
Targets: Fortinet,
ProofPoint, Palo Alto,
Sourcefire, Verint
Acquirers: IBM, SAP,

Oracle, Salesforce,
Apple, Google
Trade wars
Telecom equipment is the first line of

defense against a cyber-attack. Telecom
equipment companies may soon be
viewed as strategic military assets.
Trade wars may break out. The west may

become more protectionist when awarding
contracts for telecom equipment, cyber-security,
IT services and semiconductors.
Alcatel-Lucent, Cisco,
Ericsson, Intel
Huawei (unlisted),
ZTE
Credit fraud
Financial fraud is on the rise. Criminal

gangs are targeting banks to access credit
or loans on the back of stolen identities via
the internet.
As online personal data balloons, credit checks

will involve more complex Big Data algorithms.
Demand for credit analysis products will rise as
a cyber-fraud prevention measure.
Experian, Equifax
Regulation
Regulators may force greater corporate

disclosure of cyber-related issues (e.g.
cost to shareholders) for listed companies.
This will raise security awareness of investors,

ramping up demand for cyber-security
companies products.
Palo Alto, Qihoo 360,

Symantec, Trend
Micro, Websense
July 2013
(Vol. III)
Outlook
Recent technology trends have triggered new cyber-security risks for corporations: the bring-your-own-device (BYOD) trend coupled with
the fact that mobile workers travel all over the globe mean that corporate IT managers have to protect corporate data across more IT
platforms at a time when budgets are tight. The explosion in personal data online makes it easier for criminal gangs to steal identities and
fraudulently access bank accounts. The proliferation of third party apps has led to a dramatic rise in reported malware. In 2012, the number
of malicious web links grew by almost 600% worldwide, according to Websenses 2013 Threat Report.
As IT infrastructure and software move to the cloud, physical security gets replaced by cyber-security but a worldwide skills shortage
means that many IT managers are out of their depth when it comes to cyber security. In the longer term, the move to software defined
networks is the most worrying trend: as network hardware becomes a commodity, cyber-security risk which is currently contained in the
top four layers of the 7-layer OSI protocol stack (applications, presentation, session, transport) spreads to the bottom three layers
(network, data, physical) as well. Boards arent taking cyber-security seriously. The catalyst is just around the corner. When a respected
CEO gets fired for being asleep at the wheel during a cyber-attack, boards will be forced to spend more on cyber-security and market
sentiment will change in favour of the cyber-security sector.
Cyber-security software: Cumulative 5 year share price performance
700%
2008
600%
2009
2010
2011
2012
2013
500%
400%
300%
200%
100%
0%
100%
Ahnlab
CheckPoint
Software
F5Networks
FSecure
Gemalto
NiceSystems
Sourcefire
Symantec
TrendMicro
VerintSystems
Verisign
Websense

July 2013
(Vol. III)
Video Game Software
Dominant theme: Mobile and online games developers are losing competitive power to the big apps platforms like Apple and
the big social media platforms like Facebook and Tencent. Longer term, HTML5 technology may reverse that trend.
Outlook: The shift from console games to online and mobile games is happening faster than many expected. Mobile-first
games developers like Gameloft and Gamevil could benefit from being in the right space at the right time.
Theme
Whats happening?
Leaders
Laggards
The platform
effect
Video games are moving away from

consoles towards apps platforms like iOS
or Android and social media platforms like
Facebook or Tencent.
The big games developers are being marginalized

as their distribution becomes dependent on the
app platforms of the larger internet ecosystems.
Apples new game controller will hasten this trend.
Amazon, Apple,
DeNA, Google, Gree,
Facebook, Tencent
Perfect World,
Zynga, Activision
Blizzard, EA,
Ubisoft, Zynga
HTML5
Native apps offer better user experience,

but are expensive to maintain across
multiple platforms. HTML5 technology
allows developers to build web-based
apps that run on any smart device using a
standard web browser.
If HTML5 technology supersedes native apps as

the developers platform of choice, it will threaten
the stickiness of Apple and Googles app
ecosystems, loosening their respective walled
gardens. Competitive power would then shift back
to the video game developers.
Gameloft, Gamevil,
Activision, EA,
Netease, Ubisoft,
NCsoft
Apple, Google,
Microsoft
Motion sensors
Motion sensors that have been developed

for gaming consoles could generate
lucrative revenues in other industries.
Microsoft Kinect and Leap Motion are the market

leading motion sensors. They could provide the
critical component for robots and smart TVs.
Microsoft,
Leap Motion
Nintendo
Smart TV
strategy
Microsoft and Sony launch new games

consoles this year Xbox One and PS4.
Both have integrated their games console
with their smart TV offerings.
There is no clear winner in the internet TV market.

Apple has iTunes, Google has Android, Microsoft
and Sony have their new consoles and several
start-ups like Fanhattan are eyeing the space.
Too early to say
Freemium model
failing
In the freemium model, games are given

away for free and the games developer
makes money by selling virtual goods to
the user, often via in-app purchases.
The biggest market for freemium games is Chinas

$8bn online games market. But the model is
failing. The safest way to play the Chinese gaming
market is via the platforms, not the developers.
Tencent
Changyou, Perfect
World, Giant
Interactive
July 2013
(Vol. III)
Outlook
Sales of console games worldwide peaked at $32bn in 2008, according to PwC. By end 2012 they had fallen 15% to $27bn. PwC expect
console game sales to start rising again, but we believe they will continue to decline. The online gaming market was worth $19.5bn last
year, up 80% on 2008, and is expected to increase another 60% by 2016 China accounts for 37% of this market. The mobile games
market was worth $10bn last year, up 73% on 2008, and expected to increase another 44% by 2016 Korea, Japan and China account for
22%, 17% and 10% respectively of this market.
Whilst the online and mobile gaming sectors are growing, a sizeable chunk of the industrys profits are likely to gravitate towards the big
platforms Apple, Google, Facebook and Tencent. Meanwhile, as Microsoft, Sony and Nintendo see their customers move towards
cheaper gaming platforms, they are working hard to adapt their games consoles to become the digital hub for home entertainment, though
with limited success so far. For now, however, the mobile games developers like Gameloft and Gamevil seem to be in the sweet spot.
Gaming software: Cumulative 5 year share price performance
600%
500%
2008
2009
2010
2011
2012
2013
400%
300%
200%
100%
0%
100%

July 2013
(Vol. III)
IT Services
Dominant theme: The IT services industrys business model is changing: the typical customer is now the Chief Marketing
Officer rather than the Chief Technology Officer; its key partnerships are shifting from ERP vendors to cloud services vendors;
most importantly, its future as a middleman in a world where cheap, cloud-based services can be bought directly is threatened.
Outlook: The IT services sector faces significant downside risk.
Theme
Whats happening?
Leaders
Laggards
Big Data
Traditionally, databases and business

intelligence tools were purchased
separately. Now they are being combined
into Big Data appliances.
To survive, IT services companies need to

metamorphosise into one-stop-shop datamanagement houses because soon they will
compete with internet companies like Amazon
and Google who deal with Big Data for a living.
Amazon, IBM,
Oracle, Google,
Facebook, SAP,
Microsoft
Accenture, Atos,
Capgemini, Infosys,
TCS, Tieto, WIPRO,
Apple, HP, Dell,
Digital Marketing
Increasingly, it is the marketing executives

of multinationals rather than IT executives
that are becoming the key accounts of IT
services companies.
Advertising and brand marketing once a

people-oriented industry is, in the digital age,
very much an algorithm-based IT service.
Acxiom, Marketo,
Constant Contact,
ValueClick,
Responsys
Cloud services
Businesses are learning to cut IT costs by

shifting in-house Capex to outsourced
Opex in the cloud.
IT services companies will change their

business partners from traditional ERP giants
like SAP to cloud companies like EMC.
Amazon, EMC,
NetSuite, Red Hat,
Salesforce, Teradata
Accenture, Atos,
Capgemini, IBM, TCS
Tieto, Infosys, Wipro
Open source
databases
Traditional relational databases are not

capable of handling unstructured data.
Many next generation database platforms
like Hadoop are open source.
Oracle, IBM and Microsoft the three largest

SQL database manufacturers have the most
to lose and are belatedly embracing Hadoop.
The danger is that open source platforms drag
the entire industrys margins down.
Red Hat
HP, Oracle, IBM,

Microsoft, Progress
Software, SAP
Software
ecosystems
IT services companies risk being

disintermediated by the big software
ecosystems just as book shops have been
disintermediated by Amazon.
As a result, some will transform themselves into

software ecosystems. Niche cloud-based
application software and cyber-security
companies could become their bid targets.
Citrix, Fortinet,
NetApp, Progress
Software, Red Hat,
SGI, Informatica
July 2013
(Vol. III)
Outlook
The IT services sector is in a digital transition phase that, in many ways, resembles the retail sector. It risks becoming irrelevant as internet
services companies cut out the middle man and offer IT services storage, data analytics, ERP systems directly via the cloud. Ironically,
Amazon who destroyed much of the retail sector is now taking direct aim at the IT services industry with its enterprise cloud offering.
Revenue models for IT services companies are changing. One-off fees for expensive, large-scale ERP systems implementations are being
replaced by monthly subscription fees for Infrastructure-as-a-service (IAAS). That could reduce revenues in the short term and raise
upfront costs (because IT services companies would have to invest in their own infrastructure). Oracles partnership with Salesforce,
announced last month, is an admission that Salesforces cloud-based strategy is the future.
On 12 March 2013, we issued a Sell note on the Indian IT services sector. Since then there have been profit warnings not only from
Infosys but right across the industry from IBM, SAP, Oracle, and Tieto. We may be witnessing the start of a painful industry restructuring.
IT Services: Cumulative 5 year share price performance
200%
150%
2008
2009
2010
2011
2012
2013
100%
50%
0%
50%
100%

(Vol. III)
July 2013
Part III: Internet & Media
July 2013
(Vol. III)
Internet & Media: Executive Summary

Here is a summary of our dominant themes for the Internet and Media sectors over the next 12 months:
Internet (e-commerce)
Maps and mobile payments are the new battlegrounds in the war for supremacy of the mobile internet.
Internet (Social Media)
Crowd-funding is the next big thing in social media. The growth potential for this market is almost limitless as it expands to include
corporate loans, mortgages, credit cards and insurance services.
Traditional advertising
As advertising expenditure moves away from TV towards mobile, advertisers fortunes will be tied ever more closely to the technology
platforms that control internet TV and mobile advertising. With respect to internet TV, no platform has emerged as the clear winner yet. But
with respect to mobile advertising, Google already commands over half the global market.
Film & Television
Broadcasters are resisting the integration of live TV into the internet TV offerings of Apple, Google and Microsoft. Their hope is that an
independent platform like FanTV will emerge that will give them more control. But in the short term, the price of popular content is likely
to be bid up as technology companies keen to get into the internet TV hardware game realise that success is as much to do with access to
licenced content as it is to do with great technology.
Traditional Publishing
Like the music industry before it, the publishing sector is being destroyed by digitisation. Whilst DMGT has shown how smart management
can turn around an incumbent publisher in a declining industry, the overall outlook for publishers remains bleak.
July 2013
(Vol. III)
Internet (e-commerce)
Dominant theme: Maps and mobile payments are the new battlegrounds in the war for supremacy of the mobile internet.
Outlook: A host of new mobile ecosystems are coming onto the market, threatening the dominance of Apple and Google.
Theme
Whats happening?
Leaders
Laggards
Map wars
Knowing where your customer is located

and which direction hes heading is critical
to selling him something.
Controlling the maps function is key to

controlling mobile commerce. Google Maps
(now including Wave) is the clear leader,
followed by Nokias Navteq and Tomtom.
Google, Nokia,
Tomtom
Apple, AOL, Baidu,

Microsoft, Yahoo,
Facebook, Tencent
Mobile payments
Cloud-based solutions are displacing Near

Field Communications (NFC) as the likely
global mobile payments standard. Google
Wallet is the most prominent NFC failure.
Square and PayPal lead in the West. Alibaba

and Tencent in China. Apple and Facebook
have yet to enter the race. Several outliers like
Amazon and Groupon remain in the game.
eBay, Square,
Groupon, Alibaba,
Tencent, Monitise
Amazon, Apple,
Google, Facebook,
VeriFone
Mobile
ecosystems
Now that we know investing in big internet

ecosystems are the best way to make
money, new entrants are piling in, both by
way of new mobile web browsers and new
mobile operating systems.
For Apple and Google this may be in the price.

But for emerging contenders Alibaba,
Amazon, Baidu, Huawei, Jolla, Microsoft,
Mozilla, Tencent, Tizen, Twitter, Ubuntu,
UCweb, Yahoo there may still be upside.
Apple, Google
Alibaba, Baidu,
Huawei, Jolla,
Microsoft, Mozilla,
Tencent, Easou,
Ubuntu, UCweb
Tax avoidance
Internet services companies tend to pay

considerably less tax than their peers in
other industries. The political will to
address this anomaly is strengthening
worldwide.
Authorities everywhere are attempting to close

down tax loopholes. If they succeed, effective
tax rates for internet companies will rise and net
earnings will fall.
Internet of
Things
The internet of things refers to the

identification of objects via sensors in
order to monitor them or share information
about them via the web.
New connected devices such as Google Glass

will provide innovative ways to collect more data
about our digital lives, enabling internet
companies to target more services to us.
Amazon, Apple,
eBay, Google,
Facebook, Renren
Google, Facebook,
Apple, Microsoft,
Huawei
July 2013
(Vol. III)
Outlook
Global B2C e-commerce sales hit $1.04tn in 2012, up 22% on 2011, according to eMarketer. In 2013, they are expected to grow by 17% to
$1.22tn. The US accounts for 32%, China 14% and Japan 10% of the global total. But China is catching up fast. Whilst the US and
Japanese markets are expected to grow this year by 12% and 7% respectively, Chinas will grow by 65%.
In our last TMT Trends report (CM Research, 24 September 2012) we concluded that profits would gravitate towards the leading internet
ecosystems Apple, Amazon and Google in the west and Baidu, Tencent and Alibaba (whenever it listed) in China. Now the story has
moved on. There are far more entrants offering competing internet ecosystems and there is certainly room for five or six ecosystems to coexist in each market. Investors should watch Huawei, Jolla, Microsoft, Mozilla, Opera, Qihoo 360, Tizen, Ubuntu, UCweb and Yahoo.
Internet (e-commerce): Cumulative 5 year share price performance
1500%
1300%
2008
2009
2010
2011
2012
2013
1100%
900%
700%
500%
300%
100%
100%

July 2013
(Vol. III)
Internet (social media)
Dominant theme: Crowd-funding is the next big thing in social media.
Outlook: The fortunes of social media companies have been mixed. With so many unproven business models lining up for
IPO, investors should do their homework before investing.
Theme
Whats happening?
Leaders
Laggards
Crowd-funding
With credit markets seizing up over the

last five years, crowd-funding sites are
filling the gap.
Growth potential for this market is almost

limitless as it expands to corporate loans,
mortgages, credit cards and insurance services.
Kickstarter,
Lending club,
Wonga
Banks and insurance

companies
New social
sharing models
People are sharing more things online,

especially in Asia. In this model, everyone
wins: I help you; you help me; we help
others; and the social network profits.
Waze is an example of this type of social

sharing model where everyones a winner. New
sharing models, especially in mobile, will
threaten incumbent social networks.
Waze, Yelp,
TripAdvisor,
Pinterest, Instagram,
Tumblr, Foursquare
Facebook, Linked In,

Renren, Sina, Gree,
DeNa
Wearable
connected
devices
Social networks make money by collecting

personal data. Wearable devices such as
Google Glass or fitness tracking watches
will help them collect more personal data.
This is where social media truly converges with

consumer electronics. Wearable devices will be
designed specifically to collect personal data.
Apple and Google are best positioned to do this.
Apple, Google
Microsoft, Yahoo,
Facebook
Internet TV
Internet TV is the natural follow-on

advertising market for many social media
companies.
Competition in the internet TV market will be

intense and thus far no social network has
come up with a credible business model for TV.
Apple, Google,
Microsoft, Fanhattan,
Roku, Boxee
Facebook, Twitter,
Yahoo, Tencent,
Sina, Renren
Virtual
currencies
Social networks are developing their own

virtual currencies as well as investing in
mobile payments technology. Both
strategies will raise barriers to entry.
A virtual currency if it reaches critical mass

helps to convey a sense of widespread trust in
an ecosystem, reducing customer churn.
Amazon Coins is the latest. Expect many more.
Alibaba, Amazon,
eBay, Facebook,
Monitise, Square,
Tencent, Bitcoin
Data privacy
The EU is threatening the future

profitability of leading US technology
companies by steadfastly sticking to its
principles on data privacy.
If the EU refuses to back down on data privacy

issues, the US social media sector will be the
worst hit, with ad revenues lower and data
collection costs higher.
Apple, Google,
Facebook, Twitter,
Groupon, Microsoft,
Linked In
July 2013
(Vol. III)
Outlook
A year ago, many analysts including us expressed concern that the big social networks would have trouble moving to mobile. Smaller
screens, fewer keyboard strokes and shorter attention spans made it harder to monetize mobile social networkers. By Q1 2013, those
concerns had evaporated as Facebook and Google both saw mobile ad revenues rise steeply. Facebook reported that 30% of its revenue
base that quarter had come from mobile.
But now we have bigger concerns.
The world has 2.8bn internet users, half of whom already use social media, according to eMarketer. The next billion internet users will likely
be poorer, less literate and live in conflict zones. Most will use social media and most will do so via mobile. What these users will want of
social networks will differ markedly from the wants of their current user base. The nature of social networks is such that they are constantly
under threat from the next big thing. Current threats include virtual currencies, crowd-funding, wearable devices, internet TV and, of course,
regulators. We expect high volatility over the next 12 months in the social media sector as these trends unfold, taking some of the
established leaders by surprise.
Social networks: Cumulative 1-year share price performance
Note: Social networks simply havent been around for long enough for us to show 5 year share price performance data
250%
200%
2012
2013
Gree
Groupon
150%
100%
50%
0%
50%
100%
Baidu
Demand
Media
DeNa
Facebook
Google
Linkedin
Mail.Ru
Mixi
Netease
NHN
Renren
Shutterfly
Sina
Tencent TripAdvisor Yahoo!
Youku
Tudou

Bars show the year-to-date share price performance for a selection of large cap stocks in this sector from 1 January 2012 to 30 June 2013.
Where companies have floated during this 1 year period, the share price performance is shown since the IPO date.
July 2013
(Vol. III)
Advertising
Dominant theme: As advertising expenditure moves away from TV towards mobile, advertisers fortunes will be tied ever
more closely to the technology platforms that control internet TV and mobile advertising. With respect to internet TV, a winning
platform has not yet emerged. But with respect to mobile advertising, Google already commands over half the global market.
Outlook: Traditional advertisers probably have about a year before disruptive forces in the TV advertising market hit them.
Theme
Whats happening?
Leaders
Laggards
Digital marketing
The range of direct digital threats is

expanding. Cloud-based marketing
software from the likes of Marketo and
Contact Contact is one; so are price
comparison sites like moneysupermarket,
social shopping sites like Groupon, and
content generators like Demand Media.
The traditional advertisers have been quick to

acquire digital marketing agencies. Most, like
WPP and Havas, now generate at least 30% of
their revenues from digital advertising. To stay
ahead of the game, they are likely to acquire
more.
Targets: Marketo,
Constant Contact
Demand Media
Groupon, inContact
Millennial Media
Moneysupermarket
Responsys
Acquirers: Dentsu,
Havas, Interpublic,
Publicis, WPP
Internet TV
TV advertising still accounts for 35% of the

global advertising market. It remains the
core market for traditional advertisers.
With the advent of smart TVs, broadcasting will

switch rapidly to narrowcasting and advertisers
could see their core TV market fall off a cliff.
Apple, Baidu, NHN,

Google, Microsoft,
Facebook
Dentsu, Havas,
Interpublic, Omnicom,
Publicis, WPP
Software
ecosystems
Traditional advertisers are not just

competing with digital marketing agencies.
They are competing with IT companies
who are busy building software
ecosystems which include advertising
modules as part of the package...
... Salesforces acquisition of ExactTarget is a

case in point. IT services companies are
integrating their corporate software offerings.
Digital advertising and marketing services are
now being bundled with other enterprise
software applications, including ERP systems.
Oracle, SAP, IBM,

Microsoft
Dentsu, Havas,
Interpublic, Omnicom,
Publicis, WPP
Mobile Internet
Mobile internet ad revenues are expected

to quadruple worldwide from $4bn in 2011
to $16bn in 2013. Google should account
for 55% of this market in 2013, Facebook
12% and Twitter 2%.
As traditional advertisers core end markets

move from TV to mobile, their fortunes will be
tied even closer to Google. If Google does well
in the internet TV space too it could make large
parts of the media buying industry redundant.
Google, Facebook,
Twitter, Millennial
Media
Media buying
agencies
July 2013
(Vol. III)
Outlook
For the last decade a third of advertising revenues have come from TV broadcasting. In 2012, the TV advertising market was worth $200m,
double the internet advertising market. If you believe the TV industry is about to be hit by a new wave of disruptive technologies
spearheaded by Apple and Google, then expect the advertising industry to undergo a bumpy ride. Apple, Google and Microsoft will almost
certainly integrate their existing mobile operating systems and ad platforms with their forthcoming internet TV offerings. Without regulatory
intervention, they will suck the profits out of the TV advertising industry as they have done in so many other old media industries. Simply
generating a third of their revenues from digital marketing services will not be enough to secure WPP, Havas and Publicis future because
those digital market services will be sold to a duopoly of advertising platforms who will dictate pricing terms.
More broadly, it is interesting to note from the chart below that many new media digital marketing companies have not done much better
than the traditional media advertising agencies they have supposedly usurped. .
Advertising: Cumulative 5 year share price performance
250%
2008
2009
2010
2011
2012
2013
200%
150%
100%
50%
0%
50%
100%
Old media advertisers
New media advertisers

July 2013
(Vol. III)
Film & Television
Dominant theme: Broadcasters are resisting the integration of live TV into the internet TV offerings of Apple, Google and
Microsoft. Their hope is that an independent platform like FanTV will emerge that gives them more control.
Outlook: In the short term, the price of popular content is likely to be bid up as technology companies keen to get into the
internet TV hardware game realise that success is as much to do with access to licenced content as it is to do with great
technology.
Theme
Whats happening?
Leaders
Laggards
Third screens
Third screens involve seamless transfer of

data between 3 screens: a smartphone,
tablet and TV. Second and third screens
work best when the same operating
system is used across all three screens
(e.g. Microsoft SmartGlass with Xbox
One).
Broadcasters will not integrate live TV content

with Apple, Google or Microsofts offerings for
fear of losing control. Thats why their versions
of internet TV provide a disjointed user
experience. Expect to see a host of new
streaming set-top boxes with independent
platforms that play to content owners fears over
a potential Apple/Google internet TV duopoly.
Fanhattan, Apple,
Google, Microsoft, LG
Cisco, Ericsson, Intel,
Pace, TiVo, Roku,
Netflix, Amazon,
Samsung, LG, Sony
HTML 5
Native apps tied to an operating system

like iOS or Android make the content
provider beholden to Apple or Google, But
web-based apps using HTML 5
technology allow them to retain control.
TV channels will turn into web-based apps. This

will allow film and TV content providers to keep
their own brand identity, user interface (EPG)
and revenue stream, without having to pay a cut
to Apple or Google.
BSkyB, CBS, Disney,

Time Warner, Zee
Viacom, Comcast,
News Corp
Bidding war for

content
Its only worth buying an internet TV if you

can access the range of content you want,
both on-demand content and live TV. As
more technology players move into the
market for next generation TV software
they will have to sign a string of content
deals, bidding up the price of content in
the process.
Technology companies are queuing up to

license popular content to ensure their TV
offerings are attractive to customers. They
include internet companies (Apple and Google);
games console makers (Sony and Microsoft),
(telecom equipment makers (Ericsson and
Cisco), streaming services (Netflix and Amazon)
and telecom operators (BT and Verizon).
BSkyB, CBS,
Comcast, Disney,
Discovery, Lions
Gate, News Corp,
Time Warner,
Viacom, Zee
July 2013
(Vol. III)
Outlook
The clumsy smart TVs sold today are just the precursor for what is to come. True internet TV will allow the customer to access any
content live sports, broadcast TV, catch-up TV or on-demand programming through a single electronic programming guide (EPG)
without the latency one gets today. But we are still in the very early stages of this technology cycle streamed TV content still represents
less than 2% of the pay-TV market.
Internet TV offers big prizes. At $200bn, the TV advertising market is still double the size of the internet advertising market. Soon your
smartphone or tablet will be the second or third screen used to control your television. Apple, Google and Microsoft are well positioned to
win in this market. Several other players Cisco, Intel, Ericsson, Sony, Samsung, LG, BT, Netflix, Facebook and Amazon are lining up to
play too. Start-ups like Zeebox and Fanhattan offer platforms that are independent of Apple or Google and so appeal to the broadcasters.
But their products will never sell in the high street unless they include access to a wide range of content. So in the short term owners of
popular content will remain in the driving seat.
Film and Television: Cumulative 5 year share price performance
300%
250%
2008
2009
2010
2011
2012
2013
200%
150%
100%
50%
0%
50%
100%

July 2013
(Vol. III)
Publishing
Dominant theme: Like the music industry before it, the publishing industry finds itself outmanoeuvred by the internet.
Outlook: Whilst DMGT has shown how smart management can turn around an incumbent in a declining industry, the overall
outlook for publishers remains bleak.
Theme
Whats happening?
Leaders
Laggards
Business
turnaround
models
Print revenues are falling at a rate of 20%

per annum for some publishers. But digital
revenues are not rising fast enough to
counter this.
DMGT has shown that publishers with a

focused strategy can turn their businesses
around by moving away from print into events,
digital media and financial news.
DMGT, Pearson
Most newspaper and

magazine publishers
Google news tax
In March 2013, Germanys parliament

passed a Google tax law, forcing Google
to pay royalties to newspaper publishers
for providing excerpts of their news
articles in its search results.
Germanys law may backfire on German

publishers by referring less traffic to their
websites from Google searches. But more
countries may become emboldened to start
levying usage taxes on US internet companies.
Googles digital
library
Google is creating the worlds largest

digital books library, with over 25m books
already scanned. The problem is that it
faces multiple copyright-infringement
claims from authors who did not give their
permission to Google to publish their
copyrighted works.
Copyright cases are continuing against Google

in the US and other countries. Lawmakers are
still re-writing copyright law. If Google wins
these cases, then authors and publishers will
see assets they thought they owned being
legally expropriated by Google under fair use
provisions.
Google
Hachette (Lagardere),
HarperCollins (News Corp),
Macmillan (Holtzbrinck),
Simon & Schuster (CBS),
Penguin (Pearson)
Apples eBook
anti-trust case
The US Dept. of Justice has taken Apple

to court over allegations that it conspired
with five publishers to raise e-book prices.
All the publishers involved have now
settled, but Apple has chosen to fight the
case.
If Apple loses the case, its agency model

(which allows publishers to set the price) fails
and Amazons wholesale model (which allows
Amazon to set the price) wins. The price of
books will plummet, spelling bad news for all
book publishers.
Amazon
Apple
Hachette (Lagardere),
HarperCollins (News Corp),
Macmillan (Holtzbrinck),
Simon & Schuster (CBS),
Penguin (Pearson)
Google
July 2013
(Vol. III)
Outlook
The publishing sector is in the thralls of a downward spiral. Take the global newspaper market. It has shrunk by 14% since 2005 because
of the internet. Yet by end 2012, the industry had only managed to convert 0.5% of its circulation revenues to digital format. Magazine
publishing tells a similar story. With books, things are even worse. In the US and Europe over 15% of book sales are digital and 90% of the
market is cornered by Amazon. Moreover, the big five book publishers have all reached a settlement with the US Department of Justice on
a price fixing scam originally engineered by Apple.
Daily Mail & General Trust and Pearson stand out as two companies that have braved this new world and come out on top. Each has a
focused digital strategy and each is leaving its traditional print publishing businesses to die. But they are exceptions to the rule. For now,
we expect more carnage in the publishing sector.
Publishing: Cumulative 5 year share price performance
150%
2008
2009
2010
2011
2012
2013
100%
50%
0%
50%
100%

July 2013
(Vol. III)
Part IV: Telecoms
July 2013
(Vol. III)
Telecom Services: Executive Summary

Here is a summary of our dominant themes for the Telecom Services sector over the next 12 months:
Cable and satellite operators
Many cable and satellite operators realised several years ago that they would become dumb pipes unless they built integrated ecosystems
that packaged in-house content with their distribution platform. But the missing element from most cable ecosystems is software. Industry
outsiders have long been scheming to exploit this weakness and invade the pay-TV market by developing internet TV software that is as
user friendly as current electronic programming guides (EPGs). So far the main candidates Apple, Google, Microsoft and Sony have
failed to impress customers with their set-top boxes. FanTV from Fanhattan is the latest in a line of new entrants. But one day soon an
enterprising technology company will crack this last bastion of traditional media.
Telecom operators
The Internet of Things, mobile payments, Big Data, software defined networks, internet TV and cloud services all present potential new
revenue streams for operators as voice, messaging and internet access revenues decline. Strategies differ from operator to operator, but
three factors outside their control are likely to influence their earnings prospects significantly. The first is the level of competition: a lack of
competition in the US, following a decade of mergers and acquisitions, has helped AT&T and Verizon raise tariffs, especially in the wireless
space. The second is politics: Chinas state-controlled operators may soon be given a nod and a wink by the Communist Party to clobber
privately owned internet companies like Tencent and Alibaba with higher charges for carrying their traffic. China Mobile is already
rumoured to be negotiating a deal with Tencent for its WeChat messaging service. The third is the scope of regulation: telecom operators
are the only segment of the internet value chain to be heavily regulated. That has held broadband investment levels down, especially in
Europe. There is a growing view all over the world that regulation of the internet needs to be overhauled. Many countries, for example, are
eager to ensure US internet companies pay more local taxes. There is a small chance that telecom operators could benefit from such an
overhaul.
July 2013
(Vol. III)
Cable & Satellite Operators
Dominant theme: The optimum business model is one that combines in-house content with in-house distribution. But the
weakness in these cable and satellite ecosystems is the lack of a common software platform.
Outlook: Apple, Google and others are using software to enter these tightly guarded ecosystems. One day they will succeed.
Theme
Whats happening?
Leaders
Laggards
Content-filled
walled gardens
Many cable and satellite operators

realized they would become dumb pipes
unless they built integrated ecosystems
which packaged in-house content with
their distribution platform.
Cable operators will continue to acquire content

assets to strengthen their walled gardens.
Simultaneously, internet companies like Google
are commissioning their own original content.
Film and TV companies will benefit.
BSkyB, Comcast
Software
The missing bit of most cable ecosystems

is software. If sufficiently user-friendly,
internet TV software developed by
industry outsiders may cause cracks in
Cable-TV business models.
As user preferences shift from broadcasting to

narrowcasting, cable operators are adapting
their set-top boxes accordingly. Whilst Apple
and Google have thus far failed to conquer TV,
it is only a matter of time before someone does.
Apple, Google,
Microsoft, Sony,
Samsung, Fanhattan
Most cable operators
Dual screening
TV viewers are increasingly dualscreening: interacting with their TV via

their PC or mobile device, talking about
live TV content on social media, or using
their mobile device as a remote control.
Cable and satellite operators are trying to

control the second screen by providing
subscribers free mobile TV or interactive apps
that communicate with their TV. But loss of
control of this second screen is a real threat.
Amazon, Apple,
Facebook, Google,
Netflix, Zeebox,
Fanhattan
Most cable operators
IPTV
Telecom operators have found it difficult to

sell IPTV to cable customers. By end
2012, Korea Telecom was one of the most
successful with 6m IPTV subscribers
(almost a quarter of households). But
Verizon FiOS TV had just 4.7m; BT Vision
just 0.7m and SingTel mio TV just 0.4m.
Leading IPTV players in mature Asian

broadband markets like Hong Kong, Korea,
Singapore and Taiwan have learned that it is
difficult to displace incumbent pay-TV operators
without offering a larger content library. Until
operators acquire content on a large scale, they
are unlikely to pose a significant threat.
BT, PCCW,
Chunghwa Telecom,
SingTel, Korea
Telecom, Verizon
July 2013
(Vol. III)
Outlook
Many cable and satellite operators realised several years ago that they would become dumb pipes unless they built integrated ecosystems
that packaged in-house content with their distribution platform. But the missing element from most cable ecosystems is software. Industry
outsiders are looking to exploit this weakness and invade the pay-TV market by developing internet TV software that is as user friendly as
current electronic programming guides (EPGs).
Technology companies like Apple and Google are further down the line in terms of developing TV operating systems. But the missing
element of their internet ecosystems is content, especially live TV content.
Both industries can help each other fill in the gaps in their business model, but neither is likely to let the other into their domain. For cable
and satellite operators, the best strategy appears to be to acquire technology platforms built by start-ups like Fanhattan and stream their
content to connected TVs via web-based apps. Comcast and BskyB are investing in such technologies. The cable and satellite operators
have a hell of a fight ahead of them, but they are more prepared than the telecom operators ever were and some of them might even win.
Cable & satellite operators: Cumulative 5 year share price performance
200%
150%
100%
50%
0%
50%
100%
2008
2009
2010
2011
2012
2013

July 2013
(Vol. III)
Telecom Operators
Dominant theme: The Internet of Things, mobile payments, Big Data, software defined networks, internet TV and cloud
services all present potential new revenue streams for operators as voice, messaging and internet access revenues decline.
Outlook: As long as operators sit on the regulated side of the internet, they are unlikely to substantially increase profits.
Theme
Whats happening?
Leaders
Laggards
Internet of
Things
More and more objects are being

connected to the internet from heating
systems to engine parts to enable them
to be controlled centrally and managed
more efficiently.
Operators have an opportunity not just to make

money from carrying machine-to-machine
(M2M) traffic but by creating a set of cloudbased enterprise software services and data
centers built around the Internet of Things.
NTT, KT, China

Mobile, KPN,
Telefonica
Regulation
A geopolitical fault line is developing that

pits emerging markets against the USA.
Outside the US, the internet is becoming
more regulated. But this means different
things in different countries. In the West,
the big regulatory issues are net neutrality,
price capping and data privacy. In
developing markets, it tends to mean
political censorship of the internet.
In Europe and the US operators are lobbying

regulators to relax net neutrality rules on the
grounds that they hold back broadband
investment. In China, state-controlled operators
are attempting to bully privately owned internet
companies to pay more for the traffic they send
through their pipes. In Korea, operators want
broadcasting rules relaxed to allow operators to
compete.
Situation fluid:
Regulators all over
the world are
debating net
neutrality, data
privacy, internet
censorship
Mobile payments
Operators failed to profit from the first

round of the mobile internet. Many see
mobile payments as their second chance
to ride the mobile commerce wave.
Operators are grouping together regionally (e.g.

ISIS in the US and Weve in the UK). But they
are competing with more nimble technology
companies and will probably lose.
Apple, Alibaba, eBay,

Google, Square,
Tencent
Software defined
networks (SDNs)
SDNs transfer the intelligence currently

held in a network equipment box to a
software layer, enabling the network to be
centrally controlled.
SDNs allow operators to manage networks

more efficiently and offer new services. But
operators risk losing control of their network to
industry outsiders.
Too early to say
Most telecom
operators
July 2013
(Vol. III)
Outlook
Voice and messaging revenues have peaked for many operators. Indeed, instant messaging apps like WhatsApp which now has 250m
users is destroying operators messaging revenues faster than anyone expected only a year ago. Internet access services are becoming
less profitable because data traffic is rising at a rate of 100% per annum prompting higher capex, but competition and regulatory controls
make it difficult for operators to raise prices in line with higher investment costs. If operators do not find new revenue streams soon, their
profitability levels will decline rapidly, especially in mobile.
Operator strategies on how to combat this decline differ: BT is trying to move into the TV market with its live sports channels. AT&T,
Verizon, PCCW and many others are doing the same. SK Telecom has been the most active operator in the world in selling OTT services
such as mobile TV and online games over its advanced LTE network. Telefonica, Verizon and China Telecom are moving into cloud
services. China Mobile is investing in a platform supporting the Internet of Things but is also using its political clout to force internet
companies like Tencent (whose WeChat service generates a lot of network traffic) to pay more.
North American telecom operators: Cumulative 5 year share price performance
60%
2008
2009
2010
2011
2012
2013
40%
20%
0%
20%
40%
60%
80%
100%
AT&T
CenturyLink
Clearwire
FrontierComms
Level3
RogersComms
SprintNextel
Telus
USCellular
Verizon
Windstream

July 2013
(Vol. III)
European telecom operators: Cumulative 5 year share price performance

200%
2008
150%
2009
2010
2011
2012
2013
100%
50%
0%
50%
100%
Asian telecom operators: Cumulative 5 year share price performance

200%
150%
2008
2009
2010
2011
2012
2013
100%
50%
0%
50%
100%

July 2013
(Vol. III)
Appendix 1: M&A trends

Summary of recent mergers and acquisitions deals in the sector. This gives us an idea of which sectors and themes are hot.
Global Mergers and Acquisitions in Technology, Media and Telecoms: Two year transaction history
Q2
2013
Q1
2013
Q4
2012
StratasysacquiresMakerBot(3Dprinting)
GannettacquiresBelo(TVbroadcasting)
GoogleacquiresWaze(Crowdsourcedtrafficnavigationsoftware)
Salesforce.comacquiresExactTarget(Cloudmarketingsoftware)
SprintacquiresClearwire(Telecomoperators)
CiscoacquiresJouleX(Energymanagemnetsoftwarefordatacentres)
SoftbankacquiresSprintNextel(Telecomoperators)
IBMacquiresSoftlayer(Webhostingandcloudinfrastructure)
BainCapitalandGoldenGateCapitalacquiresBMCSoftware(Software
YahooacquiresTumblr(Shortformbloggingwithpictures)
IntelacquiresStonesoftOyj(internetsecuritynetworkfirewall)
BaiduacquiresPPS(internetvideoprovider)
CiscoacquiresUbiquisys(smallcells)
EricssonacquiresMicrosoft'sMediaroomIPTVbusiness(IPTV)
AmazonacquiresGoodreads(Bookreviewsite)
LibertyGlobalacquiresVirginMedia(Cableoperators)
GoogleacquiresChannelIntelligence(ecommercetracking)
IBMacquiresStarAnalytics(Softwareanalytics)
OracleacquiresAcmePacket(Sessionbordercontrol)
CiscoacquiresIntucell(Softwaredefinednetworks)
BelkinacquiresLinksys(Networkinggear)
ArrisacquiresMotoHome(TVsettopboxes)
NielsonacquiresArbitron(Digitalratings)
AdtranacquiresNokiaSiemensBroadbandAccessbusiness(Telecom
WindstreamacquiresPaetec(Telecomoperators)
OracleacquiresEloqua(Cloudmarketingplatform)
0
10
15
20
Acquisitionprice(US$bn)
25
30
Source: Company data, CM Research
July 2013
(Vol. III)
Global Mergers and Acquisitions in Technology, Media and Telecoms: Two year transaction history (cont.)
Q4
2012
Q3
2012
Q2
2012
RedPrairieacquiresJDASoftware(Applicationsoftware(supplychain
PricelineacquiresKayak(Onlinetravel)
CiscoacquiresCaridien(Networktrafficmanagementsoftware)
CiscoacquiresMeraki(Cloudnetworking)
VerintSystemsacquiresComverseTech(cybersecurity)
IBMacquiresKenexa(HRsoftware)
CarlyleacquiresGettyImages(Distributorofstockphotosandvideos)
AT&TacquiresNextWave(wirelessspectrum)
ZayoacquiresAbovenet(Telecomoperators)
ConsolidatedCommsacquiresSurewest(Telecomoperators)
CiscoacquiresCloupia(Datacentresoftware)
OracleacquiresInvolver(Socialmediamarketing)
CicsoacquiresNDS(Videoandcontentdeliverysolutions)
GoogleacquiresFrommers(travelguides)
OracleacquiresXsigo(datacentrenetworkingvirutalisation)
GoogleacquiresWildfire(socialmediaadsolutionsprovider)
AppleacquiresAuthentec(FingerprintID,mobilepayments)
VmwareacquiresNicira(Networkefficiency)
DentsuacquiresAegis(Advertising)
SonyacquiresGaikai(Cloudgaming)
OracleacquiresCollectiveIntellect(Cloudbasedsocialintelligence)
MicrosoftacquiresYammer(Socialmedia)
LamResearchacquiresNovellus(Semiconductorequipmentmaker)
AgilentTechacquiresDakoDenmark(Lifesciencediagnosticstools)
Salesforce.comacquiresBuddyMedia(socialmedia)
DellacquiresQuestSoftware(Softwaremanagement)
FacebookacquiresKarma(Socialmediaapp)
OracleacquiresVitrue(Socialmarketingplatform)
0
2
3
4
July 2013
(Vol. III)
Global Mergers and Acquisitions in Technology, Media and Telecoms: Two year transaction history (cont.)
Q2
2012
Q1
2012
Q4
2011
LinkedInacquiresSlideshare(Socialmedia)
SAPacquiresAriba(ecommerce(enterprisesoftwareforprocurement))
StratasysacquiresObjet(3Dprinting)
FacebookacquiresInstagram(Photosharingservice)
WesternDigitalacquiresVivitiTech(formerlyHitachiGlobalStorage
Zayoacquires360networks(Telecomoperators)
YouKuacquiresTudou(onlinevideosite)
OracleacquiresTaleo(HRsoftware)
SingTelacquiresamobee(providerofmobileadvertisingservicesto
3DSystemsacquiresZCorp(3Dprinting)
AT&TacquiresSpectrumfromQualcomm(mobilespectrum)
AppleacquiresAnobitTechnologies(Flashmemorymaker)
SeagateacquiresSamsungElectronicsHardDisk(Harddiskdrives)
VerizonacquiresAWSspectrumfromComcast,TimeWarnerCableand
SAPacquiresSuccessFactors(OnlineHRsoftware)
BlinkxacquiresPrimeVisibilityMedia(Digitaladvertising)
HuaweiacquiresHuaweiSymantecJV(50%)(Cybersecuritysoftware)
OracleacquiresRightNow(Cloudcomputing)
PermiraacquiresGenesys(Callcentreservices)
SKTelecomsacquiresHynix(21%)(Chipmanufacturing)
BroadcomacquiresNetlogic(Wirelesschips)
IBMacquiresAlgorithmics(Riskmanagementsoftwareforbanks)
HPacquiresAutonomy(Searchengine)
GoogleacquiresMotorolaMobility(Technologypatents)
Apple,RIM,MicrosoftacquiresNortelNetworks(Technologypatents)
TeradataacquiresAsterData(Dataanalysissoftware)
VodafoneacquiresVodafoneEssar(33%)(telecomconsolidation)
HTCacquiresS3Graphics(Mobilephonepatents)
eBayacquiresZong(Mobilepayments)
0
6
8
10
12
14
July 2013
(Vol. III)
Appendix 2: About CM Research

We provide global thematic research in the Technology, Media and Telecoms (TMT) sectors. Our focus is on disruptive technologies. How
will they unfold? Which industries will be impacted? Who will be the ultimate winners and losers?
Our research approach:
Our clients:
Asset managers
Family offices
Industry executives
Consultancy houses
Governments
Technology, Media
& Telecoms
Our recent themes:
Our research product:

Global TMT Trend Forecast (annual)
In-depth thematic research (fortnightly)
Technology briefings
Analyst access
Bespoke research
Search for emerging technology trends

Spot global investment themes
Screen for local companies affected
Thematic
Research
Strategy
Forward
thinking
3D printing, App revolution, Chinese Internet, Big Data,

Chinese Internet, Cloud Computing, Cyber Security,
Digital Media, HTML5, LTE, Mobile Internet, Mobile
Payments, Net Neutrality, Regulation, Robotics,
Smartphones, Social networks, Video Games
July 2013
(Vol. III)
Appendix 3: Recent Publications
Cyber-security: Evidence from the insurance industry indicates that the cyber-security sector could be the most undervalued sector in the global technology
space.
Robotics: 2012 was a pivotal year for the robot industry. As the market for industrial robots began to flat line, growth in the market for service robots is on
course to take off. Our report looks at who's who in robotics, how this industry will develop and how investors should play this theme.
3D printing: The 3D printing technology cycle will change how we design, manufacture and repair virtually everything we use today from medical devices to
aircraft parts. It could be as disruptive to the manufacturing sector as the internet was to retailing. This report looks at who's who in 3D printing and who's
impacted.
Indian IT Services: Since 2004, India's IT services sector has been growing at a compound annual growth rate of 22%. This year that growth is expected to
slow to 11%. Most analysts think this is a temporary blip. We believe a series of emerging trends make it something more worrying. Indian IT services are
overvalued.
Apples valuation: We look at why Apple shares have declined 35% since their peak and why we believe they are a Buy again.
Top 10 Tech Predictions for 2013: This report sets out ten predictions in the world of technology, media and telecoms for 2013, together with their
investment implications.
Internet regulation: A geopolitical fault line is forming that will pit emerging markets like Russia and China against the USA. The catalyst is a dispute over the
regulation of the internet. Will the balance of power in the internet sector shift from US internet companies to national telecom operators?
Tips from a Forensic Accountant: In the wake of the HP/Autonomy accounting scandal, how do investors protect themselves from the risk of accounting
fraud? We provide a forensic accountant's ten-point checklist on what to look for.
UK tech stocks to watch: Four UK technology companies that may be going places.
Chinese social media: How will China's booming social media sector - including heavyweights such as Tencent, Sina, Renren and Baidu - perform if the
incoming political regime clamps down on censorship?
Big Data beginners' guide: Ten things investors need to know about Big Data as an investment theme.
Smartphone sector trends: We identify 10 emerging trends in the smartphone sector and devise a scorecard system to rank the major players.
Facebook overvalued: Why Facebook is too expensive?
The Cloud: How will the shift from the PC generation to the Cloud generation impact the major players in the global technology sector?
Big Data: How will Big Data impact the major players in the global technology, media and telecom sectors?
Mobile Payments: Mobile payments will take off soon, but investors should be careful which technology platform they invest in.
Internet advertising: Google is undervalued and Baidu is overvalued.
Future of Wireless (Vol. II): A mobile bandwidth shortage is coming. This will change the pricing equilibrium dynamics of the internet, forcing regulators to
intervene. LTE, spectrum auctions, software defined networks and new internet pricing models are all potential solutions.
Future of Wireless (Vol. I): The mobile internet is at a watershed. Several technology cycles are now unravelling simultaneously.
(Vol. III)
July 2013
About CM Research
CM Research is an independent research provider with a blue chip list of institutional clients. We analyse emerging trends in the technology, media and telecom
sectors and develop them into global investment themes, highlighting the winners and losers. At a time when many of our competitors have had their reputations mired
by conflicts of interest, we fiercely guard our independence. Our business model is based on independence, exclusivity and experience. CM Research is a member of
the European Association of Independent Research Providers (EuroIRP). CM Research is authorised and regulated by the Financial Conduct Authority.
Contact CM Research
Cyrus Mewawalla
cyrus@researchcm.com
www.researchcm.com
22 Upper Grosvenor Street, London W1K 7PE, UK
+44 20 3393 3866
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Global Trend Forecast, 2014

The Future of Technology, Media & Telecoms

Global Trend Forecast, 2014

PART II: SOFTWARE

Global Trend Forecast, 2014

PART III: INTERNET & MEDIA

PART IV: TELECOMS

APPENDIX 1: M&A TRENDS

APPENDIX 2: ABOUT CM RESEARCH

APPENDIX 3: RECENT PUBLICATIONS

Global Trend Forecast, 2014

Internet & Media

Global Trend Forecast, 2014

Here are some of our conclusions:

Global Trend Forecast, 2014

Global Trend Forecast, 2014

Technology Hardware: Executive Summary

Global Trend Forecast, 2014

Our conclusions for the sector

Wearable connected devices such as

Wearable devices create more opportunity

The Apple business model of owning

More software companies will start making

Samsung, HP, Dell,

New entrants are invading the market for

To enter this market, some have

Jolla, Mozilla, Opera,

Chinas smartphone shipments hit 78m in

As China goes mass market, average

Google, Samsung, Huawei,

As Apple and Googles ecosystems grow,

The risk is that management becomes

Huawei, ZTE, Samsung,

Google and Microsoft have decided to

Apple doesnt have this conflict because it

Global Trend Forecast, 2014

Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research

Global Trend Forecast, 2014

Our conclusions for the sector

No technology company has yet mastered

Each player is attacking TV from a different

Sony, Samsung, LG,

Consumer electronics are fast becoming

Once-great consumer brands are being reduced

A new generation of consumer products

Three types of beneficiaries are emerging: robot

More technology companies are onshoring manufacturing of their latest high

Selected manufacturing clusters that moved to

Lenovo, Huawei, Hon

While Samsung and LG have massively

Sonys 4K TVs will be priced between LCDs

Global Trend Forecast, 2014

Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research

Global Trend Forecast, 2014

Our conclusions for the sector

In 2012, the market for 3D printing

Foxconns Terry Gou recently called 3D printing

Too early to say

New display technologies will soon give us

So far Samsung appears to be the clear leader,

Apple is diversifying its supplier base

TSMC could displace Samsung in processors