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Getting Inside the Top Tech Trends of 2015

17 Dec, 2014

Think $3.8 trillion. That’s how much consumers and businesses will pour into technology and telecom services in 2015, up 3.8% from this year. These are the headline numbers from IT research firm IDC’s annual tech sector forecast, released this month. Chad Fraser, analyst for Investing Daily continues with this:

Of course, you should handle any predictions for the fast-changing tech sector with care. But if you’re a tech investor, IDC’s annual numbers are still worth a look, even if only to get a bird’s-eye view of where the industry may be headed.

New Technologies Set the Pace

IDC sees nearly all of the tech sector’s growth coming from what it calls the “3rd Platform,” which includes mobile devices and apps, cloud computing, big data analytics and social networking.

But these technologies are doing more than just spreading; they’re hitting a key point in their evolution, according to IDC chief analyst Frank Gens:

“The industry is now entering the most critical period yet in the 3rd Platform era: the ‘innovation stage,’” he said. “Over the next several years, we expect to see an explosion of innovation and value creation on top of the 3rd Platform’s foundation.”

Today we’re going to drill down into a few aspects of IDC’s report and see where our analysts agree—and disagree—with the company’s findings.

China Drives Growth, But Don’t Overlook the U.S.

Despite its slower growth, China will account for 43% of all tech and telecom spending growth this year, says IDC. That’s not the only surprising statistic about the Asian giant: it will also be home to one-third of online shoppers and a third of all smartphone sales.

But there’s a lot to be optimistic about in the U.S., too, says Jim Pearce, Investing Daily’s director of portfolio strategy. That’s especially true in light of last week’s better-than-expected jobs report, which kept the unemployment rate at a post-recession low of 5.8%.

“While that may be indifferent news for the tech sector in that its fortunes aren’t closely tied to the labor market, it is good news for the economy as a whole,” he recently wrote in our Smart Tech Investor advisory. “And if more people are earning paychecks, that’s more consumers who can afford new smartphones, tablets and all the other cool gadgets hitting the market this time of year.

“That’s just one reason why we believe the tech sector is different—in a better way—from all of the other sectors that comprise our economy. Technology is so integral to everything we do that it’s almost impossible for it to become out of favor.”

The Cloud Thickens

One trend that’s not falling out of favor is cloud computing. IDC sees total cloud spending hitting $118 billion in 2015, on its way to over $200 billion by 2018.

If you’re not familiar with cloud computing, in a nutshell, it refers to accessing data or software on remote servers instead of on your own machine or a server in your building.

Cost savings are an important advantage, because moving to a cloud model means companies no longer need to bother themselves with setting up and maintaining their own infrastructure—and paying high IT salaries. It also frees them from regular software and hardware updates.

Cloud computing comes in a few different forms. If you do your computing online on publicly available services, that’s using the public cloud. If you do your computing on your employer’s system, that’s using a private cloud. A combination of both is called a hybrid cloud.

Get Off of My Cloud

IDC sees public cloud spending reaching nearly $70 billion this year, on its way to $126 billion in 2018. But the private cloud is also a strong bet for long-term growth. That’s where established companies with strong cloud assets, like Microsoft Corp. (NYSE: MSFT), have an advantage, according to Smart Tech Investor chief strategist Leo Boeckl.

“All businesses today have tremendous investments in their current computer systems,” he wrote in September. “So they will not simply dump those investments and move into the public cloud.

“Rather, we will see a gradual shift for businesses into their own private clouds and also hybrid clouds that reduce cost and increase productivity. This gradual migration into private clouds is providing Microsoft with huge potential for sales.”

Microsoft cloud offerings include the Azure application-development platform and its Office 365 service, which offers its Office suite of programs via subscription.

“Microsoft’s Office 365 is already is a big success,” wrote Boeckl. “It lets users operate Office from a mobile device thanks to its public cloud capability. Combined with its Yammer and SharePoint products, Microsoft can offer users a seamless way to manage documents between mobile and PC users.”

Of course, Microsoft is one of many ways to invest in the cloud. You could also look at hardware suppliers like Seagate Technology (NYSE: STX), which my colleague Thomas Scarlett analyzed in yesterday’s Stocks to Watch article.  

Other options include software-as-a-service (SaaS) companies like Marketo (NasdaqGS: MKTO), which offers cloud-based marketing automation software.

Whither Wearables?

In case you were wondering, no, the world hasn’t broken its mobile device addiction. Consumers and businesses are poised to spend $484 billion on tablets and smartphones in 2015, according to IDC, good enough for 40% of all IT growth.

But what about wearables? Will Apple’s $349 Apple Watch, set to be released in the first quarter, move the needle on their sales?

Not really, according to IDC, which says total wearable sales will “underwhelm” in 2015—though it hastens to add that the devices will “be a huge area of innovation in 2015 and the fastest-growing mobile app category in two to three years.”

That’s a more subdued view than we’ve seen from other sources, including a September report from investment banker Cowen & Co. that sees the wearable tech market topping $170 billion in 2020, up from just $10 billion today.

Component Makers: Dressed for Success?

Smart Tech Investor analyst Rob DeFrancesco is keeping a close eye on the wearable market, but while the consumer side is getting all the attention right now, he sees the companies that make the parts that go into these devices as a group to watch in the long run.

“By 2020, components (driven in part by solid demand on the consumer side) could account for as much as 35% of the wearable market,” he wrote in October.

So which stocks is DeFrancesco watching?

NXP Semiconductors, for one. The company co-invented near-field communication (NFC), which lets mobile devices transmit small amounts of data at close range. With the wave of a smartphone or tap of a wearable, users can make a payment, read information tags or swap contact information.

For all of 2014, research firm Gartner predicts shipments of NFC-enabled smartphones will hit 550 million, up 83% from last year. Apple’s new iPhone 6 and iPhone 6 Plus currently include NXP’s chips, and the Apple Watch will also be NFC-enabled.

The company also found itself in the spotlight last month, when news broke that David Tepper, founder of the $20-billion Appaloosa Management hedge fund, bought 2.5 million NXP shares in the third quarter.

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