Several industries are interested in residential connectivity markets, a highly-simplified breakdown of them includes:
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RESIDENTIAL TECHNOLOGY A Monthly Column with Lorenzo D. Domínguez Residential Connectivity and Convergence:
A Monthly Column with Lorenzo D. Domínguez
Residential Connectivity and Convergence:
The Office Comes Home or How Home Networking Stocks
Will Make You Richer in the Year 2000
Part One of a Twelve Part Series
If 1999 is to be known as The Year of Home Networking the advent of Internet networked information appliances will seal its fate and usher us into The Age of the Jetsons.
With the dawning of modern mass consumerism based on the introduction of television at the 1939 World’s Fair in New York and modern advertising with Bill Bernbach (Advertising Age’s choice for the single most influential person in the last 100 years) in the late 1950s, buying goods and services to be used within or for the home became part of daily life. Along the way, the average American consumer collected two-three televisions, a number of telephones, 2.1 personal computers, numerous household appliances, and with 2.3 children, most households can add a number of electronic game sets to the equation. Combined with the workplace, most people also now possess a number of other communication devices and reservoirs of information such as answering machines and services, voice-mail, e-mail, pagers, cellular phones, lap-tops, hand-held electronic organizers, and of course the Internet.
Within the last twelve months several major corporations have band together to establish standards by which they can conquer or at least beat the competition to a relatively new market within a long established market, that is the home and residential consumer. Both major billion dollar industry giants such as Microsoft, Intel, Compaq, AT&T and Mitsubishi; and rich venture-backed technology up-starts have sunk multiple millions into the research, development, deployment and marketing of devices and means by which we can network EVERYTHING. This interconnected web includes audio/video, HVAC (heating, ventilation and air-conditioning), security, the Internet, intercom, telephone, lighting, PCs and peripherals, and digital entertainment via the television.
Perhaps the most prominent example of an industry alliance of this nature is the Home Phoneline Networking Alliance (HomePNA) which in June of 1998, brought together a group to standardize 1 and 10 Mb/s technologies for creating home LANs (local area networks) over existing phone wiring. Founding members include: 3Com, AMD (Advanced Micro Devices), Compaq, AT&T Wireless, Epigram, Hewlett-Packard, IBM, Intel, Conexant, Lucent, and Tut Systems. HomePNA technology shares the copper pair wire that runs throughout the house among POTS, ADSL and the newly enabled home LAN. As a result, this home network functions just like a corporate network, although the user does not need advanced CAT5 wiring.
Home Networking is the Multi-Billion Dollar Wave of the Future
Home networking is wave of the future for the mobile worker, small business and home consumer. A true sign of this astronomical change in our capability to communicate, is when the IEEE (The Institute of Electrical and Electronics Engineers - with330,000 individual members in 150 countries and origins dating back to 1884, it is one of the most influential engineering associations worldwide) changed its slogan to "Networking the WorldÔ " last year.
Perhaps more substantial evidence however is weighted in with the half-dozen industry reports on home networking which have been published in the last two years from notable research groups and R & D units of Intel, the Yankee Group, IDC, InStat Group, CEMA, and Parks Associates.
Major conclusions include:
Most importantly, residential networking is a multi-billion dollar emerging consumer market. Intel believes that "home networking could become a $1 billion business by the year 2002" (Intel, 1997) and the In Stat Group predicts that the U.S. home networking market will reach 1.4 billion by 2003 (February 1999).
The consensus is also that networking the home to the Internet, that is deploying broadband connections to the home, will be one of the fastest growing markets over the next five years.
Moreover, several major companies are betting that in addition to a broadband connection to the home, consumers will be convinced that they require a residential gateway or other such device to decode and distribute the broadband signals. According to a July 1999 Cahners In-Stat Group report, the market for "residential gateways" alone (an emerging technology product combining high-speed Internet connectivity and home networking into a compact server suited for the residence and serving as a single-point of control. Cisco, Lucent, 2Wire, IBM, and Honeywell all have such products ready-to-launch or already on the market) will grow to between $2.4 billion and $8.9 billion by 2003.
Finally, many of these reports have predicted that home networking will bring in billions of added-value revenue for those introducing the devices, such as the next combination of the Apple iMAc-Palm Pilot-cum WebTV, which can use, receive, transmit, store, display and manipulate the digital media coming through the pipes of residential networks. In all, Parks Associates estimates thatresidential technologies and services in the digital millennium will boast earnings of up to $14 billion in the next few years.
The Family of the New Millennium and the Smart Home
We now have various technological ways to exchange information between everything and technology corporations are betting that we are willing to buy the means to do so. Like the Jetsons, the family of the new millennium will live in a "smart home" or "e-home" as Intel is branding it, which is able to be centrally controlled from within and outside of the house. But perhaps more lucratively prospective is the fact that the intelligent house by means of high-speed bandwidth will be able to communicate with other such houses, businesses and the ominous "Big Brother" government.
For example, white goods manufacturers such as Frigidare in the U.S. and Electrolux in Europe are betting on selling intelligent refrigerators, which with smart-enabling microchips, will be able to tell your local grocer when you run out of milk, cheese and, if major processed food manufacturers have their way, know when your are out of your favorite brand name cereal. In turn, such suppliers will be able to automatically generate specialized one-to-one marketing campaigns for you based on your individual preferences. They will be able to know what those preferred brands are, because as with current automated check-out supply chain and consumer demand management systems already allow chain super markets to do now, retail stores and corporate suppliers will be able to keep tabs on what you buy, when you buy and where you bought it.
The Home Networking Big Picture
There are two halves of the home networking big picture and ten industries have a major stake in it.
The first part consists of the race to supply consumers with the means and devices to hook up and centrally control everything in the home from the heating, ventilation and air-conditioning systems (HVAC), to security, PCs, entertainment consoles, white goods, multi-player game sets, the telephone, and everything-else-electronic. In addition to the numerous PC statistics already mentioned, spurring this demand are emerging or improving applications and services over the Internet, digital entertainment and information in the form of streaming media (such as video and audio on demand), and a rich consumer-oriented economy. The sooner the web of the home network can be woven, made affordable and commonplace, the sooner innovators will find ways to offer shared technology benefits throughout the home – making it truly intelligent and turning the animated science fiction of twentieth century into the virtual reality of the twenty-first.
Currently, there are five types of networking standards on the market and in further development including phoneline, radio frequency (wireless), powerline, infrared, and cable modems. You can read an in depth analysis of each of these and the players behind them by accessing our website atwww.useyourimagination.com.
The Autobahn in to The Home
The other half of the equation is the fierce competition to provide the autobahn in to the home, the high-speed broadband network which will enable people to receive high quality digital information and entertainment, and which will also allow us to communicate back to anyone, anywhere on the planet at unprecedented low-costs.
In 1987 asymmetrical digital subscriber line (ADSL), a technology to deliver video-on-demand services to consumers, was introduced with great fanfare. However, even with early trials by Bell Atlantic, several factors delayed the widespread deployment of ADSL in the 1990s, including the lack of industry wide standards, the high cost of customer premises equipment and the overall viability of large-scale video-on-demand services. Other obstacles included the slow process of creating industry standards and consensus through the ITU (International Telecommunications Union), and the regional Bell operating companies' (RBOCs) reluctance to roll out DSL services fearing the detriment to their T-1 (1.54 Mb/s) and ISDN revenue streams. However, now being on the verge of the digital revolution and with cable services offering their modems as cheap and easy to use high-speed access alternatives, RBOCs are racing to resolve all their conflicting interests and are striving to catch up.
Furthermore, the end of the decade brought the advent of the Internet and the Telecommunications Act of 1996, which slowly burst open the flood gates to telephony and data services, so that now hundreds of local and long-distance telephone, cable operators, wireless service, satellite network, and internet service providers are vying for a piece of the high-speed access pie. Even the local electricity company is reexamining how it can get its customers to buy more value-added services and goods over a technologically enhanced powerline. To make things even more competitive, most companies are trying to strategically offer "the one-stop shop," so that the consumer can purchase their cable TV, wireless phone, local and long-distance, Internet access, e-mail, pager, exclusive digital content and all other emerging e-services in all-in-one of a number of various competitively priced bundled service and product packages.
Everyone wants a piece of the action and the computer industry is vying for this cash-cow through its involvement in the Universal ADSL Working Group. The UAWG was formed primarily to promote a new version of ADSL, known as G.lite. With G.lite, PC makers are gambling that ADSL modems can be sold as retail products, either as added-value options to their computers or already in place enhanced features. A wave of G.lite products is expected to hit retail outlets soon, and will likely be promoted well into the holiday buying season.
Creating Consumer Demand
The combination of various companies have pretty much come to a consensus through a number of industry studies, technical standards working groups and company consortiums that in order to spur consumer demand for home networking, products and services they must fit a certain number of criteria including "no new wires," "ease of use," "accessible from anywhere in the home," "fast," "cost-efficient," and "plug and play." In other words, any home networking solution has to be easy to install, so that all you have to do is plug the device in and it plays, self-configuring (with very little, if any need, to change the software operating system of computer controlled electronic devices), have no need for new cables or wires, provide users with the bandwidth to support high speed data rates which won’t frustrate them with slow downloads of large JPEG or MP3 files, and the solution must be cheap (after all home networking is merely an upgrade, added-value service, perk to the pool of already purchased consumer tools, applications, and toys).
As mentioned there are several industries interested in these residential connectivity markets, a highly-simplified breakdown of them includes:
*Click on any of the links or go on-line at www.useyourimagination.com to read a summary of why each industry has significantly invested in this potentially booming market and how they compare to and are allying with other industries.
In closing, home networking has arrived and will change our lives as radically as the Internet already has. With the realization that in order for any company to succeed in tomorrow's marketplace it must have an e-commerce solution, all businesses will be interested in participating in the growth of extending its products and services in to your home through residential connectivity.
To stay one step ahead of the game, stay in with our Residential Technology column. Each month we’ll break down and analyze how each of these industries plans to take the lead in this burgeoning market.
We’ll examine both the public and privately held leading players in each category, the latter being just as important as the former, because we want our readers to be aware of future investment opportunities and prospective IPOs. Furthermore, to know the true value of companies and their stocks we must know how they stand up to all their competitors.
More importantly, we’ll tell you which are the prime stock picks in each category, why and when to buy.
Our analysis will compare residential technology companies and rate their stock based on the following seven factors (The Tech Seven):
HOT TIP: In the coming months, there will be three major executive conferences on both coasts of the US focusing on home networking, likely to garner a lot of media attention and be the catalyst for the formation of major strategic business alliances. The Yankee Group reports that the buzz has already started with "everyone from technology giants to the smallest startups touting home networking at the recent Comdex and Western Cable shows."
With the holiday season approaching (some retailers are already promoting its arrival) and with money to burn, home networking solutions and everything net is bound to fly high with a subsequent significant spurt in tech stock prices. The time to buy is now.
Residential Technology Recommends:
DIAMOND MULTIMEDIA,(NASDAQ: DIMD), $ 5.3438 (9/17/99)
Diamond is a sleeping giant. It offers one of the few MP3 players on the market and to the recording studios chagrin demand for MP3 is bound to boom com holiday time. Moreover, Diamond recently announced that Compaq has chosen it’s HomeFree(TM) Phoneline USB network adapter as the home networking option for its Presario line of Notebook Internet PCs. At $5, DIMD stock is penny stock worth buying.
TUT SYSTEMS, (NASDAQ: TUTS), $ 27.625 (9/17/99)
Tut is a major player on the home networking market and has experienced a stready decline in stock price over the last 52 weeks after a high of $86.25 at the beginning of the cycle, it is prime time for a resurgence. Its business has been sprite all year long and in July itreported 89%year over year growth in second quarter revenues. Considering what is about to happen in the industry, now is a fine time to buy.
PROXIM, INC.,(NASDAQ: PROX), $ 43.4375 (9/17/99)
A consistently innovative player in the wireless networking market, Proxim is rated high by 11 out of 12 analysts rating the stock. Its P/E ration is outstanding and it is selling almost $20 below its 52 week high.
BROADCOM,(NASDAQ: BRCM) $ $ 112.25 (9/17/99)
In April of this year Broadcom announced within a week of each other, record first quarter revenue and profit and a week later the strategic acquisition of Epigram, enabling Broadcom to provide the World's First End-to-End Solution for Broadband Internet Access and Home Networking. Revenue for the first quarter of 1999 was a record $96.3 million, an increase of 172.5% over the $35.3 million reported in the first quarter of 1998 and an increase of 37.4% over the $70.1 million reported in the fourth quarter of 1998. Net income was a record $19.3 million, compared with net income of $7.7 million in the first quarter of 1998. 14 firms have given this stock high marks and within 52 weeks it has seen a steady surge from $28 to a recent high of almost $150.