Yesterday we looked at two trends that are bound to affect the technology sector in 2013, and how investors can cash in. (Click here to read that article.) Below, we examine two more.
2013 Tech Trend #3: Emerging Markets Steal the Spotlight
As we noted in part 1, global IT spending is expected to rise 5.7% next year, to $2.1 trillion. Much of that increase will come from emerging markets. IT research firm IDC expects companies in these fast-growing countries to pour more than $730 billion into technology next year, up 8.8% from 2012. That total also accounts for 34% of total global IT spending.
That’s music to the ears of International Business Machines (NYSE: IBM) shareholders. A large part of the company’s growth plan hinges on harnessing rising tech investments in emerging markets. Overall, IBM expects these countries to supply 30% of its total geographic revenue in 2013. It’s already well on its way to this goal: in 2011, some of the fastest-growing emerging markets—the so-called BRIC countries (Brazil, Russia, India and China)—accounted for 19% of its revenue. In IBM’s latest quarter, sales to emerging markets increased 4%, or 11% on a constant-currency basis.
Brazil is particularly important for IBM. The country is the second-biggest IT spender among emerging markets, behind China. IBM recently announced that it is opening three more offices in the country, bringing its total to 30.
The country’s tech investments should keep rising in both the short- and long-term. Right now, it’s getting ready to host the FIFA World Cup in 2014 and the Summer Olympics in 2016. As well, the government is investing heavily in IT infrastructure, including projects under its National Broadband Plan, under which it will expand high-speed Internet access across the country.
IBM is also nicely positioned to pick up on another tech trend spotlighted by IDC: increasing spending on analytics software, which businesses use to collect and analyze sales data. In a previous report, IDC said that the market for analytics software grew 14.1% in 2011, and should increase at an annual rate of 9.8%, to reach a total of $50.7 billion by 2016. Through the first nine months of 2012, IBM’s business analytics revenue was up 14% from the same period in 2011.
2013 Tech Trend #4: Network Security Remains a Top Priority
Computer security is another significant growth area within the IT sector. In September, IT research firm Gartner released its latest analysis, which predicted that spending on IT security would hit $60 billion this year—up 8.5% from 2011—and would rise to $86 billion by 2016.
Two relatively recent trends are highlighting the importance of strong security controls even more. One is the switch to cloud computing, which will require even better security for servers and networks, and the other is the trend toward BYOD, or “bring your own device.” That’s where employees use their own smartphones and tablets for work instead of being supplied with them by their companies.
While employing a device that the employee already owns and is familiar with is a plus, it also makes it tough for IT departments to ensure that any corporate data on these gadgets isn’t compromised or distributed inappropriately.
One stock that’s well-positioned to profit from the trend toward rising security spending is Symantec (NasdaqGS: SYMC), which controls one of the leading brands in the field, Norton Anti-Virus. It also sells a range of other products and services for managing and storing data.
The company has embraced the BYOD trend with its Mobile Management Suite, a set of programs that help businesses manage a wide array of mobile devices while keeping data secure. This software also protects mobile devices from malware, or programs designed to damage computer networks or steal important data.
In its latest quarter, Symantec’s revenue rose 1% from a year ago, to 1.7 billion. A 6% revenue increase at its Security and Compliance division was the main reason for the gain; revenue fell 1% at its Consumer segment and 2% at the Server and Storage Business. Services revenue rose 2%.
The company earned $193 million in the quarter, up 6% from $182 million a year ago. Thanks to Symantec’s ongoing share buybacks—which lowered the number of shares outstanding—earnings per share rose 13%, to $0.27 from $0.24. Without one-time items, earnings per share rose 15%, to $0.45. That topped the consensus forecast of $0.38.
Symantec doesn’t pay a dividend, but it does plan to continue with its share buyback plan. It repurchased 12 million shares for $200 million in the latest quarter, at an average price of $16.48. The company has $483 million remaining on its current authorization.
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