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The Year Ahead in Tech

Michael Comeau

Last year, I made a set of 10 tech-related predictions for 2006. On Tuesday I revisited that piece to see how accurate those predictions turned out. Now I'm ready to post predictions for 2007, including some nontech forecasts.

Financial Services

Given mediocre results by the hedge fund industry as a whole, investors will begin to think twice about paying a 2-and-20 fee structure to underperforming hedge funds, and even more so for underperforming fund of funds. This will result in a serious slowdown of inflows to hedge funds, having a modestly negative impact on the large brokerage firms such as Goldman Sachs(GS) and Morgan Stanley(MS).

Citigroup(C) will give in and restructure as major institutional investors, including large mutual funds, put pressure on management to unlock value by spinning out one or more units of the company, most likely the investment bank.

Video Games

Wal-Mart(WMT) will remain a target for both politicians and activist groups, and the company will cease selling violent video games by next Christmas. This will be brought on by the release late next year of the next iteration of Take-Two Interactive's(TTWO) Grand Theft Auto franchise.

(This will translate into a nice sales boost for GameStop(GME).

Sony(SNE) will end up with egg on its face as Konami(KNM) releases a Metal Gear game, a highly coveted Sony PlayStation exclusive, on the Microsoft(MSFT) Xbox 360. Sony will also dramatically cut the price of its PSP handheld as a result of the constant beating administered by the Nintendo DS Lite.

Halo 3, due out on the Xbox 360 in November 2007, will notch more than $200 million in retail sales in the first 24 hours of release, aided by demand skewed toward the $100 Legendary Edition version of the game, which includes various memorabilia. Good for GameStop, but not good enough to make me say buy that stock here.

Microsoft will either cut or even completely eliminate the cost of its Xbox Live Gold online gaming service.

Retail

Gap(GPS) CEO Paul Pressler will be replaced by midyear, and the company won't post a single month of positive comps for the entire year.

Wal-Mart will continue to desperately cut prices in order to drive store traffic, and will embark on a wide-scale redesign of its stores to better compete with Target(TGT).

PCs

Microsoft will kill the first Zune media player by midyear, and I will write a column headlined "Goodbye to the Social," outlining Microsoft's obvious strategic errors in developing the device, specifically the decision to not design a new player from the ground up. However, Microsoft will have some modest success with a new media player designed 100% from the ground up, which will be out in time for the 2007 holiday shopping season.

Microsoft's Vista operating system won't drive big PC volume growth but will contribute to a strong uptick in demand for DRAM and graphics cards. One company likely to benefit is Qimonda(QI).

Dell(DELL) will continue to lose market share, and CEO Kevin Rollins will step aside by year-end, with Michael Dell once again taking the reins as CEO.

The Transformers movie, due out July 4, 2007, will be one of the top five grossing films of the year worldwide, resulting in a financial windfall for Hasbro(HAS) as both kids and adults scoop up Transformers toys after watching the movie. Shortly after the release of Transformers, a new G.I. Joe film will be announced.

Offshore Outsourcing

This will remain a big growth market, with business process outsourcing (BPO) companies, to whom companies offload core company functions such as customer service and accounting, leading the way. Names to look at include TeleTech Holdings(TTEC), Convergys(CVG) and WNS Holdings(WNS).

There will also be significant consolidation among offshore outsourcers as larger technology service companies seek to enter the space and as smaller BPO firms combine to increase geographic, customer and service line diversity.