Author Archives: Scalper1

Amazon Customers Confirm: Cloud Transition Still Biggest Trend

After tracking down top tech execs of 10 Amazon Web Services customers and nine AWS “premier consulting partners” for interviews, Deutsche Bank analysts came away convinced that the migration to the cloud is still “the biggest and most disruptive trend in the enterprise IT market today.” Aside from “assessing macroeconomic risks to 2016 IT budgets (as) the topic du jour,” many tech execs are slowing their IT spending as they prepare to move their enterprises to the cloud, said Deutsche Bank analyst Karl Keirstead in a research note Tuesday. Keirstead questioned whether the macro headwinds that many blame for the current softness in tech spending are really at fault. “Even Tableau Software ( DATA ) cited this phenomenon,” he wrote. Tableau stock notoriously gapped down 49.5% Feb. 5, spooking investors and dragging many software stocks with it, after offering 2016 guidance that missed Wall Street expectations. Tableau stock, down a fraction, near 40, in afternoon trading in the stock market today , is more than 50% off its Feb. 4 close and 70% below its all-time high above 131 set last July. Amazon ( AMZN ) stock was up 2.5% in afternoon trading Tuesday, near 520 and 25% off its all-time high of 696.44 set in December. The runway is still enormous for cloud migration. Amazon’s AWS, Microsoft’s ( MSFT ) Azure and Alphabet’s ( GOOGL ) Google Cloud Platform combined have grown revenue to about $10 billion annually, a “tiny penetration” of the $500 billion to $1 trillion spent annually on tech services and products, Keirstead said. “The trend to AWS is clear … as more and more large enterprises are shuttering private data centers in a quest to become ‘data center independent’ and younger and smaller customers are piggy-backing on AWS as a faster and cheaper way to scale up in new geographies,” he wrote. Neutral Toward Oracle, Security Vendors The big legacy IT infrastructure vendors are feeling the brunt of the migration, he said. Those interviewed were “cautious” toward managed hosting and colocation data center vendors, neutral toward enterprise software developer Oracle ( ORCL ) and neutral (not negative)  toward security vendors because “most” customers won’t rely only on AWS security, Keirstead says. “It was a mixed  bag for Red Hat ( RHT ), as several of the ‘all-in’ customers seemed content to move to Amazon’s own Linux distribution,” he wrote. He said feedback was “bullish” on software-as-a-service companies  Salesforce.com ( CRM ) and Workday ( WDAY ). “We now wonder if AWS is creating a tailwind for the SaaS (Software as a Service) vendors … and if the IT services vendors could get a lift as enterprises look to move or re-platform workloads to make them more cloud-friendly,” Keirstead mused. Deutsche Bank maintains buy ratings on Microsoft, Salesforce and Amazon.  Salesforce is expected after the close Feb. 24 to report earnings up 36% for the January quarter. Salesforce stock was down a fraction Tuesday afternoon, near 59 and 29% off a Nov. 19 all-time high at 82.90. Rival Workday stock was up 2.5% Tuesday afternoon, near 50.50, still 48% off nearly two-year high set in October 2014. It’s scheduled Feb. 29 to report an adjusted loss of 4 cents per share for its fiscal Q4 ended in January, vs. 6 cents lost in Q4 a year earlier. Keirstead said he doesn’t doubt that macro pressure is “keeping a lid on infrastructure IT spending,” but big legacy players Cisco Systems ( CSCO ), IBM ( IBM ) and EMC ( EMC ) “have cited a ‘tough macro’ seemingly every quarter for 12-plus months, he says. “It is entirely plausible that the ongoing weakness in technology capex, private data center build-outs and hardware refresh activity is also due to ongoing structural shifts as large enterprises rethink their IT infrastructures to prepare for a transition to the public cloud model.”                  

Facebook Drones, Alphabet Loons Vie To Lift Internet

Millions of Indonesians will gain access to the Internet if Alphabet ( GOOGL ) can follow through with plans to put large balloons high in the sky as part of its Project Loon program. Like Alphabet, Facebook ( FB ) is also working on plans to bring Internet services to large swaths of people in places where it’s hard to connect fiber-optic cable. Instead of balloons, Facebook is experimenting with large drones flying at high altitudes. Neither project is expected to easily fly over friendly skies. Alphabet’s Project Loon has faced opposition from Indonesia’s largest telecom company while Facebook’s Free Basics plan, which currently provides free Internet service in India, was thwarted by Indian regulators. Project Loon was first announced by Google about four years ago. The idea is to put a network of balloons traveling near the edge of space, designed to provide Internet coverage for people in rural and remote areas. Google has tested the concept with test flights across jungles, mountains and plains. It started with a trial of about 30 balloons over New Zealand. Trials also have been held over Indonesia, Sri Lanka, Australia, Brazil, France and elsewhere. The first commercial implementation is set for later this year over Indonesia. Agreements are in place with three mobile network operators, Indosat, Telkomsel and XL Axiata, as partners for the service. Telekomunikasi Indonesia, the largest telecommunication services company in Indonesia, in comments last October said the plan could harm local telecommunications providers. Alphabet has said it would work with Indonesian companies to develop a business model that works with the country’s law. About 2 in 3 of Indonesia’s 250 million residents do not have Internet access, Alphabet says. That’s largely because stringing fiber networks or installing mobile phone towers across the more than 17,000 islands that make up Indonesia is a significant challenge. Through balloon-to-balloon communication, Project Loon can receive and transmit wireless signals to even the most remote islands. The balloons are about 50 feet in diameter and soar at an altitude about twice that of other aircraft. Electronic gear and solar panels hanging with the balloons include an altitude control system. The balloons can then be programmed to rise or fall in order to catch stratospheric winds that can position the balloons at the right locations. Facebook, through its Free Basics service, provides free but limited Internet service on mobile devices. The service is available to about 1 billion people across Asia, Africa and Latin America, designed to “bring more people online and help improve their lives,” Facebook says. It’s part of Facebook’s Internet.org initiative that has provided Internet access to 19 million people in 38 countries. Last week, India’s Telecom Regulatory Authority ruled against differential pricing for Internet service, thwarting the idea for Facebook’s Free Basics and other similar services. Entrepreneurs in India had criticized the service, saying it positioned Facebook as a gatekeeper to the Web and that they feared being left at a competitive disadvantage.

Micron Snubs Tsinghua, Favors Another Chinese Partnership: Analyst

Micron Technologies ( MU ) rebuffed Tsinghua Unigroup’s $23 billion bid, but that doesn’t mean the memory chipmaker has scrapped plans for Chinese partnership, MKM analyst Ian Ing wrote Tuesday in a research report. That partnership could come in the form of a joint venture, Ing wrote in a research report after Micron’s analyst day on Friday. Ing reiterated a buy rating and 19 price target on Micron stock, which was up 7.3% in afternoon trading in the stock market today , near 10.80. “We think Micron would require control of both IP and production decisions in the structure of any JV,” he wrote. “The biggest benefit to Micron is the ability to produce output as a ‘local supplier’ and national champion for China’s domestic market.” Chinese Investment In Micron China plans to invest $55 billion in local chipmaking businesses by 2020 in an effort to curb reliance on foreign semiconductors. But state-sponsored Tsinghua Unigroup’s bid for Micron was doomed from the start, analysts say, as U.S. regulators would have shut it down. A joint venture, however, wouldn’t necessarily spike regulators’ concerns. Credit Suisse analyst John Pitzer said he “would not be surprised by an equity investment in Micron from one of the Chinese private equity companies.” After its failed Micron bid last year, Tsinghua Unigroup invested $3.8 billion in Western Digital ( WDC ), days before Western Digital announced its plan to acquire flash memory chip maker  SanDisk ( SNDK ). “(Micron) has a presence in all major memory markets, which makes it particularly interesting from M&A or an equity investment target for China Inc.,” Pitzer wrote in a report. “While (the Committee on Foreign Investment in the United States) could be an issue for outright sale, the company could still attract equity investment in China.” Pitzer reiterated his outperform rating and 20 price target on Micron stock. Summit Research analyst Srini Sundararajan rates Micron stock a buy, with a 21 price target. Micron Pulling Ahead In Samsung Rivalry “The backdrop of any buy thesis on Micron over the medium term should be that Samsung is not doing well,” Sundararajan wrote in a research report. Apple ( AAPL ) and Chinese LCD manufacturers are scooping share, and Samsung has yet to squeeze much profit out of its nascent 3D Nand flash chips, he wrote. DRAM (dynamic random-access memory) profitability could be Samsung’s “salvation,” but its capital expenditures cut has yet to bear fruit. DRAMs are the most common memory chips in computers. Meanwhile, Micron is slimming costs, Sundararajan wrote. In 20-nanometer DRAM, Micron is targeting a cost reduction CAGR (compound annual growth rate) of 15%-25% through fiscal 2017, Pitzer wrote. Micron also sees 25% cost reduction CAGR in 3D Nand. “Any progress in closing the cost ‘gap’ will drive stock performance,” Pitzer wrote. A rebound could pull Micron stock out of its trough, Mizuho analyst Vijay Rakesh wrote in a report as he upgraded Micron stock to buy from neutral. Sundararajan also expects Micron to let Intel ( INTC ) work out the kinks in the jointly-owned 3D X-Point chip and then “exploit it advantageously” from 2018. “Good times will come should Micron execute,” he wrote. “Micron has dashed hopes and portfolios in 2015, hence it is important to ignore those getting out of Micron stock and take a fresh look.” Even with Tuesday’s gain, Micron stock is roughly 70% off a nearly 16-year high touched in January 2015.