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March 30, 2016
Greetings: This week, we take a detailed look at mergers in the tech world, the move toward a more secure Internet and the coming need for more cell phone towers. Tech Deals SurgeStrong merger and acquisition activity among technology companies will continue this year. Dealmaking in 2015 totaled $148 billion, according to PwC's deals practice, and will tick higher in 2016. What's hot in technology? Cloud computing. Big data. Cybersecurity. Connected sensors and devices. Plus, more tech companies are poised to make bets on emerging areas that could spell big future profits, including artificial intelligence, drones, virtual and augmented reality and robotics. Some of the deals won't pan out, of course, especially as some emerging tech trends are slow to take hold. Some notable recent deals: Dell's $67-billion acquisition of EMC, one of the largest deals to date between tech firms; Avago's $37.8-billion purchase of Broadcom; Intel's $16.7-billion payment for Altera, helping the chip giant invest and expand; and Lam Research's $10.8-billion purchase of KLA Tencor, a maker of optical equipment. Information technology firms see consolidation as the cheapest and quickest way to enter new markets, especially for hardware-centric sellers, as sales of PCs and other devices slow. For example, Dell's acquisition of EMC will open up more IT choices for businesses. The deal spells heightened competition for IBM, HP and Cisco, which will sweeten IT deals to keep their customers from jumping ship to Dell. Small and midsize firms will have expanded access to a wide range of services from IT providers offering one-stop shopping. Dell will have new services to offer in networking, cybersecurity and mobile devices. When it comes to information technology, expect more consolidation in cybersecurity, big data and cloud computing, says Michael Diamond, commercial technology analyst at NPD Group, a tech marketing firm. (Continues below.)
Chip makers are consolidating to speed advances in cutting-edge tech. Recent deals are bolstering chip firms with more cash to pour into the increasingly costly research and development of creating new chips. Partnerships swiftly bring valuable intellectual know-how under one roof. More M&A activity is on tap this year, following $38 billion worth of semiconductor deals in 2015. A ripe area: Chip designing businesses. Such companies don't actually manufacture chips, but develop them and license the technology. The number of major firms has shrunk to 15, from more than 30 just 10 years ago. To spark growth, chip makers need to design new types of high-tech semiconductors to meet rising demand for power efficiency, small size and computing horsepower. Among firms that focus on chip design: Qualcomm. Nvidia. MediaTek. Look also for large tech firms such as Apple, Cisco and Facebook to grow their own chip designs by buying established companies and promising start-ups. Apple and others see strong benefits from tighter integration between chip designs and their hardware and software. Benefits of chip deals will trickle down to the entire electronics industry. Plus, businesses and consumers will benefit from the beefed-up companies that have more ammunition to pursue the next generation of microprocessors. Dealmaking will also be strong for companies focused on software, the Internet and hardware. Top software firms will be sought after as data crunching becomes more critical. Internet companies will be looking to scale up and navigate fast-changing Web trends. And hardware companies will be looking to stem the bleeding from falling prices. Building a More Secure WebEfforts to build a more resilient Internet will boost cyberdefense. Network engineers are devising innovative ways to fix lingering flaws to deter hackers, and new technical aspects of telecom networks will be rolled out alongside 5G wireless. The new security tools will be incorporated into data centers, routers and software. "We need to think about how to redesign networks to better handle applications that will emerge in the future," says Paul Polakos, a Cisco fellow. Researchers and companies are calling the rough framework information-centric networking because the data itself, not the network, is protected. The security tools are being designed by Cisco, Ericsson, Microsoft and Qualcomm. "Security needs to be integrated into the 5G network from the get-go," says Matt Grob, chief technology officer at Qualcomm. Some of the most common cyberattacks are sure to decline in coming years because of the improvements. Distributed denial-of-service attacks, for example, which flood a site with traffic that causes crashes, will be combated with advanced routers and software. Better encryption will help computer users avoid falling victim to e-mail viruses. Mobile networks will also get a lot of attention as sensors proliferate and expand the landscape for attacks. Of course, hackers will see beefed-up defenses as yet another challenge to overcome. "Communication providers that can point to security, it does give them an advantage," says Paul Steinberg, chief technology officer at Motorola Solutions. Governments and military will keep a close watch on new security tools, too, especially for deploying makeshift communications networks in dangerous areas. Meanwhile, Uncle Sam will run into even deeper problems with legal wiretapping. Future network designs anticipate vastly more connected things and more cyber risk, leading to deeply integrated security measures. That will lower the government's ability to access digital information. To prevent the government from being left in the dark, Uncle Sam will enter discussions about the design of 5G networks. The Future for Cell TowersExpect U.S. cell tower expansion to kick into higher gear in 2017 as major players Verizon, AT&T, T-Mobile and Sprint pony up for large towers, helping builders such as American Tower, Crown Castle and SBA Communications. "There is typically a pause in spending as carriers transition between different technologies.... Now the industry is on the cusp of 5G," wrote Jennifer M. Fritzsche, senior analyst at Wells Fargo Securities, in a March 4 research note. Driving the growth: The need to handle massive new amounts of airwaves that will accompany and accommodate the spread of fifth-generation mobile networks in coming years. The Federal Communications Commission will auction off TV airwaves this year to cellular carriers, following up on a 2014-2015 auction that had companies shelling out $45 billion to grab airwaves. Carriers will need to spend more on fiber cable and other infrastructure to put those airwaves in use. "5G is going to be infrastructure intense," FCC Chairman Tom Wheeler noted at a recent event. Meanwhile, carriers will rely on small antennas to accelerate new service. Small antennas help reuse airwaves and are a necessity in densely populated areas. That's an opportunity for building owners to lease rooftops to carriers. Tech TidbitsNetflix is in hot water for degrading video streaming on some cellular networks. The company says the practice grew out of concern over users' mobile data caps. Internet providers aren't buying it. Telecom regulators won't take action against Netflix, but the Federal Trade Commission might investigate. Netflix degraded video streams to save data on AT&T and Verizon but not T-Mobile or Sprint, because the company said the former two charged extra when users exceeded their data caps. Unsure how much data your mobile habits use up? Try an online calculator. Cellular carriers have tools that add up data use for varying amounts of e-mail, music, video, social media and Web surfing. The biggest data hog: Streaming HD video. AT&T's calculator is particularly handy. Also expect to see more settings on mobile phones that help control how much mobile data you use. Keep in mind that activity on Wi-Fi networks doesn't count toward cellular data usage. Sincerely, View the archive of past Alerts issues
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