Highly Experienced Tech Portfolio Manager Sees Cloud Computing As Main Trend To Watch: What Are Her Top Picks?

Wall Street Transcript

67 WALL STREET, New York - September 12, 2012 - The Wall Street Transcript has just published its Investing in Technology and Other Strategies Report offering a timely review to serious investors and industry executives. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Investing in Technology - Bottom-Up Investing - Price Discrepancies - Alternative Investing - Small-Cap Investing

Companies include: Google Inc. (GOOG), Amazon.com Inc. (AMZN), Apple Inc. (AAPL), Salesforce.com (CRM), Microsoft Corporation (MSFT), EMC Corporation (EMC), VMware, Inc. (VMW), Teradata Corporation (TDC), Cisco Systems, Inc. (CSCO), Oracle Corp. (ORCL), Hewlett-Packard Company (HPQ), Dell Inc. (DELL), Accenture Ltd. (ACN), Adobe Systems Inc. (ADBE), Red Hat Inc. (RHT) and many others.

In the following excerpt from the Investing in Technology and Other Strategies Report, an experienced portfolio manager discusses her outlook for the technology sector for investors:

TWST: You mentioned secular changes. Please talk a bit more about those changes and what broad themes or trends you're finding most interesting.

Ms. Koch: I would say that there are four secular trends, and three of them are subsets of the main one, which is the shift to cloud computing. Cloud computing has been around for a while. The genesis of it was in the early days of the Internet. Some of the applications that you access over the Internet are basically the first cloud applications. Today, Google (GOOG), Amazon.com (AMZN) and iTunes from Apple (AAPL) are good examples of what cloud computing means, where you don't really have the data or the logic of the applications stored on your computer, you're accessing it through the Internet. What we're seeing today is a broader adoption of that, not only by consumers to access digital content of all forms but also in the enterprise. Google and Amazon are great examples. The ways that they run their computing data centers are very different than what you see in most enterprises today, and we're seeing the adoption of those Internet-based techniques in commercial enterprises.

So cloud computing is the key driver that enables the other three trends - mobility, analytics and social computing. In mobile computing, we've had smartphones for several years, but only now are you really starting to be able to use a mobile device to do the work that you can do at your desktop. For example, people who are out in the field doing their jobs can now have more access to the stuff that they have on their PC at work through either their smartphone or their tablet. We're seeing a lot of innovation when it comes to a brand new set of applications that are being written, by both independent programmers and enterprises themselves, to take advantage of this mobility. There are certain types of work that you just couldn't get done by dragging a laptop around with you. Usually when you see a shift in the computing paradigm, as we're seeing now, you see a complete new set of applications that get developed and create a whole new wave of productivity improvements in the economy. We are just in the very early days of that, so it's very exciting to someone who runs a tech fund, because there are a bunch of opportunities to look forward to.

We've already started to see a new class of IPOs that have come to market; we expect to see more in coming years as these technologies mature and these newer companies start to get some critical mass, especially around these new types of applications. We expect this new application innovation wave to result in improved productivity in several areas of the economy, like health care, for example. We think that sector is behind when it comes to investing in technology, and we think that cloud computing, mobile applications and analytics will be able to help introduce a brand new set of applications that can help lower costs. So that's an area where we think we'll see big changes because of these shifts in computing. Retail is another good example of a sector using all four secular trends to improve operations, but especially analytics. Because of the global competitiveness, particularly in the retail space but really in any customer-facing enterprise, you're seeing a complete reinvestment cycle in the front office, using analytics to provide your customers with better service, better products and more timely information. Companies are trying to build one-to-one relationships with their customers. That's a very big driver. We're seeing huge investments made in software and hardware and services that help enterprises understand what their customers are doing and how to better serve them.

The last trend of the four mentioned would be social computing. If you think about Facebook (FB) as a metaphor, it represents a platform for real-time collaboration, with the ability to view and share photos and videos with the people you're connected to. The same phenomenon is happening in enterprises, with products like Chatter or Jive (JIVE). Salesforce.com's (CRM) Chatter product is very much like Twitter for enterprises, where an executive can subscribe to applications or content that he wants to be kept up-to-date on and be involved in that real-time work flow and collaboration. These products allow employees to monitor activity, kind of like a dashboard. All of that technology is starting to be deployed in the enterprise, and as with any wave in technology, usually a new set of leaders emerge, which is what we're seeing today.

As I mentioned, whenever you have new technologies emerge and secular tailwinds driving investment, it's an exciting time to be involved as a technology investor.

TWST: What are some of your favorite investment ideas currently?

For more from this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers, and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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