The Tech Investor's Guide to 2009

These are the top tech trends to look out for in the coming year.
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More Clouds to Form

Cloud services, which offer computer power and storage via the Internet, will make their mark in 2009 as users struggle with

shrinking tech budgets

.

Even the

Department of Defense

has

rubber-stamped

cloud technology, which is championed by the likes of

Hewlett-Packard

(HPQ) - Get Report

and

Google

(GOOG) - Get Report

.

Storage specialist

EMC

(EMC)

also is

getting in on this act

, as are

IBM

(IBM) - Get Report

,

Sun Microsystems

(JAVA)

, and

Microsoft

(MSFT) - Get Report

, which recently unveiled a cloud-based version of Windows.

However, cloud computing is not without its challenges, and was recently cited by

Cisco

(CSCO) - Get Report

as one of security professionals' biggest headaches.

Outages, such as those suffered by

Amazon's

(AMZN) - Get Report

S3 offering, also have focused attention on the reliability of cloud services, not to mention negative comments from detractors such as Oracle's

Larry Ellison

. The technology will nonetheless be a big part of 2009.

H-P to Blaze a Trail

Few, if any, tech companies will emerge from the economic crisis unscathed, although H-P is blazing something of a trail for others to follow.

The company

beat

Wall Street's revenue estimates in its recent fourth-quarter results, largely thanks to its booming services business.

H-P, which has $10.3 billion in cash, also is earning a reputation for

tight expense control

and expects to shave $1 billion off its expenses through its ongoing integration of services giant

EDS

.

"Though macroeconomic conditions are likely to remain very challenging, we believe HP will effectively manage expenses, expand operating margins and drive EPS in Fiscal 09," wrote

R.W. Baird

analyst Jayson Noland, in a note. "We continue to recommend HP as a diversified, well-positioned player with attainable cost cutting improvements through F'09."

With up to 70% of its revenue coming from overseas, H-P also has a cushion against the weakening U.S. economy and derives much of its profit from "recurring revenue businesses" such as printing and services.

This can only bode well for 2009.

Security Software to Surge

With tech stocks heading south, security software should at least offer some upside in 2009.

Criminal activity, particularly identity theft, is expected to surge as the economic slowdown continues, which could leave firms such as

McAfee

(MFE)

well positioned

.

McAfee and firms such as

Symantec

(SYMC) - Get Report

also may

benefit

from heightened oversight of the financial sector, which is likely to require additional

security software

.

With Microsoft even planning to offer

free consumer security software

in the second half of 2009, security will certainly remain high profile throughout 2009.

Small Will Be Beautiful

With the broader PC market

tanking

, netbooks, or mini-laptops, will be a

hot

technology in 2009.

Technology analyst firm

IDC

, for example, expects portable computer shipments to grow by 15.2% next year, while forecasting a decline of 6.7% in desktop PCs. According to

NPD Group

, less than 1 million netbooks were shipped in 2007, although this figure will rise to 14 million by the end of 2008.

Companies such as H-P and

Asus

have

ramped up

their netbook efforts during recent months, and even

Apple

is said to be preparing a $599

version

of the

technology

.

If Apple does indeed throw its weight behind netbooks, then it will add yet more momentum to an already booming part of the tech sector.

Yahoo! Yields to Change

After

Yahoo!'s

(YHOO)

board rejected a

$47.5 billion bid

from Microsoft to acquire the company,

pressure

has mounted on the

troubled

Internet giant to revisit a Microsoft deal, which may happen in 2009.

In a

letter

to the company's board earlier this month,

Ivory Investment Management

proposed a deal in which Microsoft would acquire Yahoo!'s search engine and Yahoo! would retain 80% of revenue generated by search queries on its own site.

Analysts had already identified the benefits of a Yahoo!-Microsoft partnership. "A deal would lock-in high guaranteed annual revenues and EBITDA for Yahoo, and re-focus it on its long-term opportunity in display

advertising and content," wrote

Jefferies & Co.

analyst Yourself Squalid, in a Dec. 2 note.

Yahoo!'s stock is trading around $13, close to its five-year lows, and a far cry from Microsoft's offer of $33 a share. In a clear indication of investor sentiment, Yahoo! shares typically rise whenever talk of a Microsoft deal is resurrected.

There is, however, a good chance that change will happen when Yahoo! appoints a replacement for former CEO

Jerry Yang

, who bitterly opposed Microsoft's takeover. Whether this resurrects the original Microsoft deal remains to be seen, although Yahoo! certainly has to do something to boost its share price.

Apple to Withstand Tech Crunch

Whether it is the

health of its CEO

, the firm's share price, or Steve Jobs'

attendance

of geeky tech shows, everything

Apple

(AAPL) - Get Report

does still will come under the microscope in 2009.

Despite

rumblings to the contrary

, however, the tech bellwether should continue to withstand the weakening economy.

Although smartphone sales are slowing, Apple is actually

gaining share

from competitors such as

Nokia

(NOK) - Get Report

.

Technology analyst firm

Gartner

recently reported that Apple's smartphone sales grew more than 327% year over year, compared with Nokia's 3% decline.

Apple, which shipped 6.9 million iPhones during its recent

fourth quarter

, also has more than $24 billion in cash, which should help ease its journey through the coming months.

In addition to its

AT&T

(ATT)

-backed iPhone business, Apple also has a solid revenue stream in iTunes and its 65 million-plus customers. That's one hell of an installed base.

"The combination of solid fundamentals, a sound balance sheet and a tailwind from falling commodity prices should help Apple to generate superior cash flow in fiscal 2009 and allow Apple to outperform its peers," wrote

Pacific Crest

analyst Andy Hargreaves, in a recent note.

Outsourcing to Remain Strong

Despite recent events in

Mumbai

, outsourcing remains a viable proposition for U.S. firms wrestling with shrinking IT budgets.

"The offshore value proposition is alive and well, as IT buyers indicate that moving work offshore is a proven way to lower systems cost in a tough environment," explained

Citigroup Global Markets

analyst Ashwin Shirvaikar, in a recent note.

Technology analyst firm

Forrester

agrees that outsourcing will grow in 2009, albeit at a modest rate. After growing 4.2% in 2008, outsourcing will grow 5% and 4.5%, respectively, in the next two years, it says.

"Sellers of communications equipment, software, and IT consulting and outsourcing services will see one or two quarters of declining revenues, but on average will still grow modestly in 2009," wrote Forrester analyst Andrew Bartels, in a recent note.