Apple iWatch, Square IPO: 10 Tech Predictions For 2014 (Update 1)

Updated from 7:30 a.m. to reflect additional news on Cisco's guidance cut at its analyst day.

NEW YORK (TheStreet) Last week, I took a look at my tech predictions for 2013, and while I was spot-on-the-mark on some of them, I was way off on others. Since it's that time of year again, I've compiled a list of what I think is most likely to happen in 2014 in the world of technology. With some of my predictions, I'm pretty confident, while others are a bit more out there.

Mobile will continue to be the key theme for 2014, as devices become more prevalent in our daily lives. Now that smartphones and tablets are essentially mainstream, the next product category is the health and fitness market, and wearable technology is where it's at. We're becoming a more active society and are vastly more concerned about fitness than we were say 10 or 15 years ago. I suspect this trend is only likely to increase, as people do everything they can to lengthen their lives and live healthier.

We've already seen Samsung's entrant into the smartwatch scene, but the world is awaiting a launch from Apple (AAPL) to really kick it off.

On the following pages is an outlook, including the possibility of an iWatch, the fate of certain private, soon to be public companies, and a potential merger that may raise some eyebrows in the media/technology space.

Apple iWatch Launch

I'm pretty confident that this one will happen, perhaps as soon as March of this year. Apple CEO Timothy D. Cook has previously said Apple is moving into new product categories, and has hinted that the wrist is an interesting space for wearable technology. "The wrist is interesting," Apple's CEO said during a tech conference earlier this year. "You still have to convince people it is worth wearing."

The company has reportedly been ramping up production on its iWatch team, as it looks to compete with the likes of Google (GOOG) Nike (NKE) and others in the space, and rightfully so. Many believe the sensor field will explode this year from a product and revenue standpoint, and Apple is poised to benefit, according to Rich Tehrani, chairman of the Wearable Technology Conference.

"Apple's entry into the smartwatch space will take the smartwatch from its current 'geek technology' focus into the mainstream markets," Tehrani said in an emailed statement earlier this year. "The likes of Fossil and Swatch have nothing to be concerned with so long as Sony and Pebble are the industry smartwatch leaders. Once Apple gets into the game, the smartwatch will become mainstream and will, in fact, directly target the Fossil and Swatch customer base. Apple intimately understands that the wrist is about fashion, not about technology."

Earlier this year, Morgan Stanley analyst Katy Huberty wrote that a smart watch from Apple could be worth as much as $10 billion to $15 billion in annual revenue for the consumer tech giant, assuming a $200 price point.

Jawbone, Fitbit, or Both, Get Acquired

Going back to the wearable technology space, Fitbit and Jawbone are two of the more prevalent names in the industry, with the Fitbit Flex Wireless Activity + Sleep Wristband among the most popular items on Amazon. Jawbone also has a wristband device of its own, Jawbone UP.

Both of these devices track how you sleep and your activity, such as steps taken and calories burned. Via apps to your iPhone, you can upload what you eat and drink, while tracking your nutritional information right from your smartphone.

In August, Fitbit, raised $43 million in new venture capital funding, with Softbank Capital leading the round. Not to be outdone, Jawbone raised more than $100 million in September, in a combination of debt and equity financing. Both of these companies will need exit strategies for their venture capital investors, and given Apple's eventual entrance into the space, an acquisition for one of the two looks increasingly likely.

Potential buyers include Nike (NKE), which already makes the Nike Fuelband, a similar product. Under Armour (UA) is also another potential acquirer, having recently started to up its investment in the technology space, acquiring MapMyFitness for $150 million last month.

Of the two companies, I believe Jawbone is more likely to get acquired than Fitbit, given that Yahoo! (YHOO) CEO Marissa Mayer is on the company's board, and we all know that Marissa loves a good acquisition. Or several.

Earlier this year, TheStreet visited Fitbit's San Francisco-based offices to talk wearable tech and what's to come.

Snapchat Valuation Bubble Bursts

This one may already be starting to happen.

Snapchat, the popular messaging app that allows users to send 6 or 10 second messages to their friends, and then have them disappear, has been all the rage recently. Facebook (FB) recently tried to acquire the company for $3 billion, while Google (GOOG) reportedly offered $4 billion for Snapchat.

Based in Los Angeles and co-founded by Evan Spiegel, Snapchat recently raised $50 million in new funding, giving the company a valuation of approximately $2 billion. Snapchat had hoped to raised $54.5 million.

Though I'm not a venture capitalist by any stretch of the imagination, it does seem odd to me that the company would raise money at a valuation lower than what Facebook and Google were offering to pay.

Snapchat's potential business model is difficult to see right now, given the messages disappear after users open them. It's not an open platform, a la Twitter or Instagram, which sold to Facebook for roughly $730 million. It will likely experiment with in-app purchases and potentially even ads, but the advertising model is different than Twitter, Google or Facebook, simply because the messages go away.

Given the exceptional run-up in equity markets in 2013 and increased confidence in Silicon Valley, it's hard to see how valuations go higher if the business model doesn't support it.

Square Goes Public

Square, the San Francisco-based mobile payments company, is poised to go public. Around the time of the Twitter (TWTR) IPO, details were leaked that Square was considering going public in 2014. The company could be worth as much as $4.5 billion, after raising funds last year at a valuation of $3.25 billion.

The company already has Larry Summers on its board, and recently added former Goldman Sachs (GS) CFO David Viniar to its board, further fueling speculation that the company is readying itself for the public markets.

The Jack Dorsey-led company is not profitable, and gives a good chunk of its revenue to MasterCard (MA) and Visa (V), which is an investor in Square. As of May, Square was processing $15 billion in transactions on an annualized basis, but that number could be higher now. Based on a 2.75% flat fee, that would put Square's annual revenues at around $550 million, but given the nature of its agreement with MasterCard and Visa, that number is probably closer to $150 million.

Dorsey has previously said he has plans for the company to become profitable by 2015, but did not say whether those plans include additional capital raises to achieve that goal.

If I were a betting man, I'd put the likelihood of a Square initial public offering in 2014 at better than 60% odds, given the nature of the equity markets, and the need for expansion into the hot mobile payments space. Though I was able to predict with some reasonable accuracy of when Twitter would file its documents (I said November, the company did it in September and went public in November), I'm much less certain about this timing. Best guess? The company files its documents in August, and goes public around October.

Dropbox, Box IPO's Flop

Judging by my predicitions, 2014 seems to be more about private companies than public ones, and this prediction is no different.

Dropbox and Box, both based in Silicon Valley, serve a very important market, allowing customers to store and share their photos, documents and videos in the cloud, and then bring them anywhere they go.

Both offer free storage to their users, with Dropbox starting at 2GB and Box offering 5GB worth of storage, but document sharing is a commodity, and ultimately, a utility. Apple offers its own services, iCloud, and actually tried to buy Dropbox in 2009, before being rebuffed. Google, Microsoft (MSFT) and others also offer free file hosting and sharing services.

Though revenue growth for either company isn't public, it's thought that Dropbox did $240 million in 2011, and Forbes reported Box did around $70 million in 2012. Dropbox offers three types of accounts: Free, Pro, and Teams, which is offered toward businesses. Dropbox allows users to store 2 GB of data for free, all the way up to 18 GB if you refer other users. The Pro plan starts at $9.99 per month for 100 GB worth of storage, and increases from there.

These aren't huge numbers, and the growth rates aren't known, but I suspect three to six months out from their initial public offerings, investors will be looking very differently at these companies than they did prior to their IPO's, largely because it's pretty difficult to tell one service from another.

HP Enters the 3-D Printing Market

HP (HPQ) is struggling to stay relevant, as the company is seeing its PC and Printing segments continue to decline with no end in sight. CEO Meg Whitman has made some recent comments about expanding the company's forays into other areas, including 3-D printing, which could happen early next year.

"And what we're doing is focusing on what's the value proposition by market segment, whether that be consumer or industrial," Whitman said on HP's most recent earnings call. "What's the competitive differentiation and we've got some very interesting things coming. So stay tuned in 2014."

The additive manufacturing market (which 3-d printing is categorized as being in) has been growing like a weed over the past 20 years, expanding at a compound annual growth rate (CAGR) of 18%. But it's only been in the past few years when the industry has really started to take off, with media and investors taking notice. Over the past three years, revenue from 3-D printing has more than doubled to $2.2 billion, and is poised to continue its growth, according to Deutsche Bank analyst Sherri Scribner.

Given the sharp run ups in equity prices of companies like Stratasys (SSYS), ExOne (XONE) and 3-D Systems (DDD), it only makes sense for HP to try and attract investor interest in this manner, and show that the company is spending its R&D budget in the right areas.


Carl Icahn Gets What He Wants From Apple

Activist investor Carl Icahn made headlines over the summer when he announced he had a large stake in Apple, calling the stock "extremely undervalued." Since that time, Icahn has asked for a $150 billion buyback, but recently lowered his demand for the size of the buyback.

Apple has already announced plans to return $100 billion in cash to shareholders over the next three years, through dividends and share repurchases, but the company has hinted in recent months that it would revisit this in the calendar first-quarter of 2014. "As we've said in the past, the Board and the Management team will consider a wide range of issues and be thoughtful and deliberate and we will announce any changes to our current (capital return) program in the first part of the new calendar year," Cook said during Apple's most recent earnings call.

With Icahn initially asking for $150 billion in a buyback, many, including myself, felt he was being short-sighted. At a much smaller amount, say an additional $20 billion or so (must be nice to think of $20 billion as small), then it's feasible that Apple could up its buyback program, appease Icahn, and all parties will be happy.

That may be tough to do without raising additional debt, given CFO Peter Oppenheimer has previously said Apple's domestic cash is likely to decline, and has stopped accumulating.
"Finally, given that our capital return program must be funded from domestic cash, and as a result of our payments to date, the cash that we can net domestically and return to shareholders has stopped accumulating," Oppenheimer said on Apple's most recent earnings call.

Ultimately, I think both parties find a way to get a deal done, but at a much lower number than $150 billion.

John Chambers Steps Down as Cisco's CEO

Cisco (CSCO) CEO John Chambers has had a rough 2013, but 2014 could be a whole lot worse.

Equity markets have soared in 2013, but Cisco has largely stayed out of the rally, only gaining 4.28% year-to-date, compared to a 23.26% gain in the S&P 500.

Cisco's first-quarter revenue last month was woefully short of expectations, as the company loses market share to competitors, and struggles in China. Its second-quarter guidance offered investors no solace, as the company expects to generate revenue between $10.89 billion and $11.13 billion, well below the expectations of $12.6 billion.

In an analyst meeting on Dec. 12, Cisco cut its forecast for revenue growth over the next three to five years, indicating growth between 3% and 6%. It had previously said revenue would grow between 5% and 7%, so clearly there's a lot of work to do for Chambers and his management team.

Chambers has led Cisco to become a networking and switching utility for the enterprise, but its largely been passed by companies such as F5 Networks (FFIV), Brocade Communications (BRCD) and others, who have eaten Cisco's lunch.

To be fair, the company is fighting back, having launched its own software defining network (SDN), and is pushing towards making products that are focused around the cloud and especially mobile. It's also heavily invested in the Internet of Things (IoT), whereby regular appliances, such as refrigerators, washing machines and dishwashers become connected to the Internet.

That doesn't mean that the pressure on Chambers, 64, isn't great to turn Cisco's ship around. If Chambers cannot right size Cisco's product portfolio, its operating expenses, and reestablish its presence in emerging markets, especially China, than perhaps it's time for Cisco's board to look for replacements.

Potential replacements include Rob Lloyd, Cisco's President of Development and Sales and Chuck Robbins, senior vice president of the Americas. If Cisco's board of directors really wanted to shake things up, they could look outside the company, potentially at Pivotal CEO Paul Mortiz or Brocade's Lloyd Carney.

Intel Becomes Relevant in Mobile... Finally

To put it kindly, Intel (INTC) has missed the mobile boat for the past decade, as companies like Qualcomm (QCOM), Broadcom (BRCM) and others have by-passed the chipmaker in the mobile revolution.

We've all heard the stories from Intel, about how the Silvermont family, led by Bay Trail, is going to be the company's savior, helping it to compete with ARM Holdings (ARMH) based chips. We've also laughed when we've heard those stories, including yours truly. With new CEO Brian Krzanich at the helm, I believe that 2014 may be the year Intel wins some design awards that make you actually stand up and take notice, as opposed to playing second-fiddle to the aforementioned chipmakers.

Make no mistake, I'm not expecting Intel to become dominant in mobile. What I'm saying is that Intel will no longer be the laughing stock in a room full of iDevices. I realize I'm going out on a limb here, but maybe Krzanich finally gets Intel's act together and trusts his gut. Unlike the last guy.

Yahoo! Buys Business Insider

My last prediction of 2014 may ruffle some feathers in the media and tech world, but that's what makes them fun, right? No one wants to read another boring old prediction piece.

(YHOO) CEO Marissa Mayer has shown a propensity to spend and acquire businesses, acqui-hires, and personalities left and right this year.

The biggest acquisition this year was Tumblr, which Mayer spent $1.1 billion on, mostly in cash. Most of her acquisitions have been related to improving Yahoo!'s mobile experience, including Summly, Jybe and others, as she seeks to make Yahoo! a daily habit.

More recently, Mayer has been acquiring talent, most recently David Pogue of the New York Times and Katie Couric. Given Yahoo!'s exceptionally strong balance sheet (thanks Alibaba!!) and her penchant for acquiring talent, a Yahoo!/Business Insider deal makes sense. The two companies already have a close relationship, with Business Insider CEO and Editor in Chief Henry Blodget appearing frequently on Yahoo! Finance programs.

A few years ago, Blodget penned a piece allowing Yahoo! to buy BI for $150 million, but obviously nothing came of it. A deal between the two parties has always seemed like an inevitability to me, based on type of content, synergies, and their already close relationship.

I have no idea if this deal happens or even if the two parties have talked, but it just seems like a no-brainer to me.

--Written by Chris Ciaccia in New York

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