6 Stocks to Gain From Tech Battle Starting in 2012

(To update with JMP Securities report that is is maintaining its "outperform" rating on Salesforce.com. with a $170 price target.)

BOSTON ( TheStreet) -- The information-technology industry is in the early stages of a transformative shift, and a handful of companies are seen benefiting over the next decade.

Cloud computing, software as a service and big data are the buzz words for IT's change. Integrated with mobile computing, those technology subsets will drive industry revenue growth at a rate of about 18% per year and account for at least 80% of IT-spending growth between now and 2020, according to International Data Corp. ( IDC), a research firm.

IDC says "2012 will be marked by some of the first high-stakes battles as companies seek to position themselves for leadership in these critical and fast-growing technology areas."

Matthew Schuldt, manager of the $573 million Fidelity Select Computers Fund ( FDCPX) said in an interview that cloud-computing sales are running at about $20 billion annually now and could be up to $50 billion by the end of the decade.

"It's already a big market that's growing fast," he said.

Schuldt said cloud-computing demand is also being driven by consumers' usage, as iPhone and iPad maker Apple ( AAPL), Internet search engine Google ( GOOG) and online store Amazon ( AMZN) all now offer cloud-computing services.

The huge growth in the data demands and the use of smart phone-like devices is contributing to that, Schuldt said.

Indicative of that trend, two years ago there were 1.4 billion mobile devices in use and less than 150 million were termed smart phones, but now there are 1.6 billion mobile devices, and 475 million are smart phones, he said.

"And in a few years we will have 1 billion smart phones sold annually. So that's a fundamental shift in the way people communicate and we expect that will be with us for three or four more years" before it peaks, he said. "It's a big deal (because) smart phones and tablets are (already) a $250 billion market."

Charles Chai, manager of the $2 billion Fidelity Select Technology Portfolio ( FSPTX) and six other technology-oriented funds, wrote in a Fidelity report on secular economic trends that IT will be reshaped by these three "compelling early-stage themes."

"Cloud computing -- using networks rather than local computers to manage data and run software -- represents an architectural shift," said Chai, who works in Fidelity's Hong Kong offices.

The beneficiaries of cloud computing's growth "will include platform providers, whose value-added will likely be in the management software to run large-scale virtualized systems," Chai said. "And given their complexity, competition from new players will be limited and early providers are likely to capture the majority of market share."

Providers of Internet infrastructure, applications, and security also will benefit from the trend toward aggregated off-site centralized computing, as will software firms capable of providing software as a service.

That service eliminates the need to buy proprietary IT infrastructure, as users can access it when they need it over the Internet and only pay for what they use.

Big data refers to new types of large data sets, everything from correspondence to confidential customer information, have emerged because of advances in technology, including mobile computing.

Driving these changes is the growth of mobile computing. Data transfer from that sector alone is expected to grow at a cumulative annualized rate of 92% between 2010 and 2015, according to Fidelity's research.

IDC said in its outlook for next year that 2012 will be a battleground for those offering cloud services "as the strategic focus shifts from building infrastructure to the creation of application platforms and ecosystems."

"The key to investing in long-term winners in the big-data space is identifying companies that will have 'escape velocity,' " writes Chai. In other words, "companies that reach a certain critical size ahead of their competitors will likely continue to command a dominant share of the market."

IDC said the list of leaders includes International Business Machines ( IBM), Microsoft ( MSFT) and Oracle ( ORCL). But they will be challenged by Amazon ( AMZN), Google ( GOOG), Salesforce.com ( CRM) and VMware ( VMW) in cloud computing and software services.

Big firms will look for an edge by buying smaller firms with complementary technology. "Look for Microsoft to buy a content/media cloud, like Netflix ( NFLX), to provide a marketplace for its apps and content," IDC said in a research note.

Other prime targets for acquisition, IDC said, are cloud applications/software-as-service companies, such as privately held Workday, an on-demand financial-management and human-capital-management software vendor; NetSuite ( N), which delivers enterprise software over the Internet; and Taleo ( TLEO), a human-resources software company that provides an on-demand, Internet-based software product.

Fidelity identifies the stocks it thinks will benefit from these trends, but the detail in Chai's report is such that we picked several that we thought matched his generic profile and most of them are also named by IDC as potential big winners.

The six stocks that follow are among those that are already among the leaders in the IT industry expected to benefit most from IT's changes:

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EMC ( EMC)

Company Profile: The company is a long-time leader in big-data storage, offering hardware, software, and services for enterprise network storage. It recently increased its focus on its software and services segments.

The EMC Atmos division offers a cloud storage platform and other services that fit the big data theme and the company has been on an acquisitive tear to build those capabilities. Fidelity has a 2% stake in the company.

Market Cap: $46 billion

Share Performance: down 6% this year it has a three-year average annual return of 25%.


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International Business Machines ( IBM)

Company Profile: The company is one of the largest information-technology companies, with an array of offerings including systems hardware, infrastructure software, outsourcing, and systems integration services.

IBM's SmartCloud division includes: infrastructure as a service, software as a service and platform as a service and so it is well positioned to be a leader in the latest wave of IT.

Market value: $214 billion

Share Performance: up 25%; three-year average annual return of 31%.

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Microsoft ( MSFT)

Company Profile: The company is a software giant with a wide array of computing products. Morningstar said "cloud computing is a double-edge sword for Microsoft. The impending move to web-based applications threatens to commodify (its) Windows PC operating system while opening up new revenue and profit opportunities in the deployment and delivery of cloud-based software services."

Market value: $217 billion

Share Performance: down 5%; up 13% annually, over the past three years.


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Oracle ( ORCL)

Company Profile: The company is the leading provider of database software with an estimated 45% of the overall database market, according to IDC. That puts it in a sweet spot when it comes to the three big themes cited for IT. The company is also a major provider of enterprise software solutions.

As a result of its recent acquisition of Sun Microsystems, the firm can provide complete IT services to its clients. Fidelity has a 2.3% stake in the company.

Last week Oracle reported that in its second-fiscal quarter just ended, profit climbed 17%, but the results fell short of the company's earlier estimate, It also gave a muted forecast for the current period.

The company said deals were delayed because its customers' are slow to approve new purchases, which suggests that businesses may be trying to curb spending on economic concerns. As a result, share prices slumped industry-wide.

Market value: $130 billion

Share Performance: down 17%; up 14% annually, over the past three years.

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Salesforce ( CRM)

Company Profile: The company is a provider of hosted customer relationship management (CRM) software services and is expanding into multi-application on-demand services, which fits the software-as-a-service mold. Fidelity is its largest investor with a 15% stake, more than double that of the next biggest investor.

JMP Securities said Tuesday that it is maintaining its "market outperform" rating on Salesforce.com and its $170 price target, (its shares are now at $98), as a result of its research finding that the company may have closed on "the largest single deal in its history, just before Christmas," which is expected to generate over $10 million per year in revenue.

Market value: $13 billion

Share Performance: down 25%; up 45% annually over the past three years.


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Hewlett-Packard ( HPQ)

Company Profile: The company is one of the oldest providers of hardware and software, and makes and sells everything from PCs to big data storage, and huge business and government networked systems. Its business services generally require all-inclusive long-term contracts that make it expensive for the customer to migrate to another vendor.

The company has a new CEO who is trying to refocus the company, which has lost market share in several key areas over the past few years. It is in position to benefit from the latest trends with its HP CloudSystem program.

Market value: $51 billion

Share Performance: down 38%; down 9% annually over the past three years.

>>To see these stocks in action, visit the 6 Stocks to Gain From Tech Battle Starting in 2012 portfolio on Stockpickr.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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