Offside the social network boom and smartphone revolution, we’ve got an additional boom for the computer industry. It was long ago since great expectations pushed stocks from the computer industry into dizzying highs. It's simple to explain why: The industry had no revolutionary themes for investors. Now, the industry and investors have found a new one: cloud computing.
Users don’t need to buy hardware and software, and they don’t need to operate and observe their system. They could even rent the parts of the IT. The required services are provided by external service provider data centers; high investments and operating costs are no more necessary.
Analysts at Morgan Stanley predict that this business has a great future. A survey of 300 decision-makers revealed that the proportion of users could increase worldwide within three years from 28 to 51 percent. The percentage of cloud-based IT processes could increase from 10 to 22 percent.
The impact on the industry is very different. Unique profiteers could come from the memory chip industry. While the demand from individual companies will decline slightly, the need for data center operators will increase much more. The biggest players are EMC (NYSE:EMC), NetApp (NTAP), Western Digital (NASDAQ:WDC) and Seagate (NASDAQ:STX). A second profiteer group could be the network equipment manufacturing industry. They should report higher growth due to the fact that the transition to cloud architectures could lead to a growth that would more than offset the weakening demand for internal network components. The third major profiteers are consulting services.
Somewhat ambivalent looks the situation of the server business industry. Analysts are expecting a significant lower demand for internal installations. This will mainly affect Hewlett-Packard (NYSE:HPQ) and Dell (NASDAQ:DELL) because data centers would probably tend to fall back to lower-cost Asian manufacturers such as Quanta (NYSE:PWR) or Wistron.
For the software industry, cloud computing is in general a good thing, but not all manufacturers are well positioned for the change in technologies. Morgan Stanley supposed that only 16 companies are well positioned. One of them could be Microsoft (NASDAQ:MSFT). Some stocks have performed very well and have reached all-time highs. The best known cloud computing stock is Salesforce.com (NYSE:CRM). The company has a price earnings ratio of 427 and a forward price earnings ratio of 79. This loony valuation is similar to the valuation of some social networks. Crazy?
However, some fundamentally interesting stocks are IBM (NYSE:IBM) and the two Taiwanese hardware manufacturers Quanta (NYSE:PWR) and Wistron. The stock of the semiconductor company SanDisk (NASDAQ:SNDK) seems to offer a small margin of safety.
Full Disclosure: No positions, not intended to buy any stocks or obligations within the next 72 hours. I don't receive any compensation by the mentioned companies.
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SNDK, PWR, IBM, MSFT, MS, HPQ, DELL, CRM, STX, EMC, ATAP, WDC,
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