Editor's Note: Paul Kedrosky's columns run exclusively on RealMoney.com; this is a special free look. For a free trial subscription to RealMoney.com, please click here. This article was published Nov. 25 on RealMoney.
Comdex was a bust. That's the common wisdom about last week's technology trade show in Las Vegas.
Superficially, that was true. Only 50,000 people attended the debacle in the desert, significantly fewer than the usual 180,000 to 200,000. There were far fewer exhibitors, with all of Comdex crowded into one exhibit hall instead of sprawling over three or four -- and then out into sundry hotel suites. Taxi drivers and porn purveyors looked pitifully unhappy.
Invasion of the Gadgets
Many of the exhibitors seemed as baffled as anyone. Despite the show's focus on "enterprise IT," which simply screamed "serious business purpose," sober technologies were few and far between. Years ago, there might have been databases, CRM applications, host controllers and arrays of hard drives, but this year there were mostly ... gadgets.
Digital cameras. Keychain storage devices. Film-less video cameras. Media editing tools. Webcams. And on and on. For serious companies like
at a newly serious trade show like Comdex, it must have been embarrassing. An executive at the preternaturally sober company positively pleaded in one speech that people ignore the gadgets and focus on "real" enterprise stuff.
And the media picked up on that. Gadgets, people sniffed. Too few exhibitors and not much new, said others. Where is
? Where is
? Where are the serious vendors beyond a few like
and IBM? After all, at Comdex and CDXPO (a would-be Comdex usurper running in Las Vegas at the same time), the largest non-Microsoft booths were from countries, like Canada and India, promoting technology outsourcing. As (Canadian) Alanis Morissette might say, isn't it ironic?
How the industry has fallen. Right?
Wrong. While Comdex has seen better days, and while there were fewer people than usual at the show, something interesting and important was going on. The industry is turning from a customized, application-centric business to a prepackaged, device-centric one. Call it the consumer-electronics-ification of the technology industry.
You Can't Game Fashion
That has investable implications, but not the ones you think. Specifically, I wouldn't recommend that you try to pick the next hot digital camera or related technology any sooner than you try to pick the next hot book, movie or clothing style. Digital fashions are changing very quickly, and investors will get whipsawed trying to play them.
But there are other ways to invest around the new technology industry. Look for the things that are constant in all of these new devices, and look at how the underlying infrastructure has to change to support these new products.
So what is constant across all of them? They're all communications-centric. No one would dream of selling a digital camera, a keychain storage device or almost anything else that didn't connect neatly and simply to your personal computer. Everything has to be connected; everything has to be a shared resource.
A few years ago, many of those connections were proprietary, but not anymore. As a matter of fact, most devices connect using a single standard: USB (Universal Serial Bus). It has become the lingua franca of device communications, allowing you to attach any device straightforwardly to almost any PC (plus do a lot of variants in between).
The USB Angle
So one way to play the device explosion (and avoid figuring which device is best this week) is to invest at the USB end of the market. Every new stand-alone electronic device now requires a USB chipset, as do all personal computers. There are a number of USB variants that cover off lower speed (USB 1.x) and higher speeds (USB 2.0), as well as different amounts of USB intelligence, ranging from stand-alone to host-dependent.
Units sold over the next four years are forecasted by In-Stat in the following table. (These numbers are more conservative than my own view, but they are a reasonable starting point for your own explorations of this market.)
Total USB-Enabled Device Summary Forecast by USB Type
Source: In-Stat/MDR 1/03
The main USB chipset vendors are a list of fairly familiar names. The gorilla, of course, is
, which dominates the PC part of the USB business with a motherboard-integrated product. While that is good for Intel, it is not nearly as interesting as what is happening at the device end of the market. That market is a much cleaner play on USB, with a number of vendors competing, but
is the current market leader.
Where do things go from here? Well, keep a few things in mind.
First, USB is broadening beyond being simply a way of communication over cables between PCs and electronic devices. Cypress and others are pushing wireless USB as a competitor for ultrawideband and Bluetooth, two other close-proximity device communications approaches. That is still in its early stages, but it could certainly cause an explosion in new USB devices, ranging from telephone headsets to cell phones and PDAs.
The USB standard is also becoming more powerful. For example, a new variant called USB On-the-Go has arrived, and it makes USB smarter and more independent. While it doesn't make PCs completely unnecessary, it does make it possible for USB-enabled devices to communicate and perform basic functions without there being a PC anywhere around. Similarly, Cypress has been pushing its WirelessUSB approach, allowing low-speed wireless communications among USB-ready devices.
Devices in Play
These market changes are important on their own, but they may have an unintended consequence. While many current computers support USB and related device communications standards, others don't -- or at least they don't support the latest speedier iterations, like USB 2.0. Among other things, this deep structural change in the industry is likely to drive an unheralded PC upgrade cycle, starting in the home and then broadening to the workplace. Good for Intel and
, but also good for increasingly device-centric PC vendors like
All in all, far from being a bust, Comdex signaled a deep change in the technology industry. It is becoming increasingly intertwined with everything we own and buy, and the result is large new markets for the main providers. If that is reason to be pessimistic about the industry, then color me highly pessimistic. Not really.
At time of publication, Kedrosky was long Cypress, although holdings can change at any time.
Paul Kedrosky advises various hedge funds and private equity firms in the U.S. and Europe and serves as a distinguished fellow at the University of California in San Diego. Formerly a high-ranked sell-side technology equity analyst, Kedrosky has also started various technology companies and worked in product management at Digital Equipment Corp. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Kedrosky cannot provide investment advice or recommendations, he
welcomes your feedback.