Why tech stocks have a glorious future
Unless you believe poor people will suddenly start to enjoy being unconnected and uninformed, you've got to have faith in tech's future. Just look at the numbers.
(Fortune) -- As a financial writer, I spend a lot of time looking at numbers. Right now, the numbers say that the world has a huge and unremitting hunger for technology, communication, Internet access, and information.
That means that while we may seem to be living in grim economic times, tech companies are facing a future that is anything but grim - something that is salutary to recall when we read the daily headlines about financial turmoil and economic uncertainty. If you take the global view - and what technology company doesn't? - there really isn't much uncertainty. While things could slow down for a year or two, there is nowhere to go but up - way up.
In Indonesia, one person in a hundred owns a PC, and only one in a thousand has a broadband Internet connection. While there are already 63 million cell phone subscribers, that only represents 27% of the country's population of 234 million. Cell phone subscriptions in Indonesia are growing 36% annually. And you think that's something? In India, with 166 million cell phone users, growth last year was 84.5%.
These are numbers I randomly picked out from my favorite annual spreadsheet - the just-published 2008 Global Internet Snapshot compiled by Imran Khan, senior analyst for Internet, media and entertainment at JP Morgan (JPM, Fortune 500). Khan and his adept team spend months gathering data (the CIA is one major source) and making sure it's comparable. They use it to compile a massive chart that enables us to compare countries and regions all over the world by population, GDP growth, use of PCs, broadband, and mobile and landline phones.
When attempting to divine how deeply technology could ultimately penetrate developing countries like Indonesia or India, you might think the benchmark would be the United States. And for PC penetration it is. Only Switzerland (with 85.1) exceeds the 80.3 PCs per 100 persons we have here in the United States. Even if you don't think the rest of the world will ever reach that level, it will go a lot farther than it has so far. Khan's chart shows global PC penetration to be a measly 12.9 for every 100 people.
But for cell phones it's a different story. Here the United States is a laggard, with 77.4 subscribers per 100 people. The place to see the potential for worldwide cell phone use is Europe, where every country but Turkey exceeds the penetration of the United States. Italy, where many people have multiple subscriptions, is the European champ, with 135.1 cellphone subscribers per 100 people. Hong Kong exceeds even that, with 135.3. The overall global average is 41.6 subscribers per 100 people. The world's 2.75 billion mobile phone users are growing in number at an annual rate of 27%.
The unsated hunger for connectivity, communication, and information just leaps off the charts. Let's look at, say, Peru, where cellphone use grew 57% last year, or the real mobile growth champs - Vietnam at 114%, Pakistan at 170%, and Ukraine at a whopping 185%. To be sure, we should acknowledge that some of these stats may be fuzzy, but it's impossible to deny that we are seeing a historic transformation of the world's population. The charts don't give growth rates for PCs per person and broadband usage, but we can simply look at the global figure for broadband Internet access penetration - 5.3% - and draw our own conclusions.
Says Khan: "It highlights that there is pretty significant opportunity worldwide for PC penetration growth and Internet penetration growth. That's why we put this chart out - the numbers speak for themselves."
In addition to the data about economies and technology access, Khan's team compiles data about global advertising expenditure by media, especially the percentage of advertising spent on the Net. Then he looks at the growth of each country's Internet-connected population, and global trends.
He highlights a stat showing that the global population of people connected to the Internet - now 1.3 billion - has had a compound annual growth rate of 20.3% for the past eight years. Meanwhile, Internet ad spending of $40 billion remains only 6.6% of the global total of $605 billion and is growing at an annual rate of 33%. Says Khan, who follows companies like Google (GOOG, Fortune 500), Yahoo (YHOO, Fortune 500), and Omniture (OMTR): "When I look at this it makes me very excited about the sector I cover."
Khan is quick to point out that he only covers Internet stocks, and thus cannot generalize about what the numbers mean for other types of companies. He adds: "The big question is whether global economic growth can be sustained if the U.S. slows down."
Me, I'm happy to generalize.
Among companies I believe are likely to benefit from these trends long term are globally-oriented ones including wireless equipment and phone-makers Qualcomm, Nokia, LG, and Samsung; infrastructure providers Cisco and Juniper; multi-faceted large tech companies IBM and Hewlett-Packard; telecommunications operators Deutsche Telecom, Telefonica, Vodafone, and BT; software firms Microsoft, Oracle, Symantec, VMware, and Salesforce.com; Internet companies Google, Yahoo, eBay, Amazon, and Facebook; and diversified global media companies News Corp., Time Warner (which owns Fortune and CNNMoney.com), Bertelsmann and the about-to-be-created Thomson Reuters.
More regional players will also likely benefit, especially in China, where winners are likely to include Baidu, Tencent, and China Mobile. Given the pace of growth in wireless, a global economic slowdown might most trouble the companies in that sector, but again, only in the short-term.
We are entering a world of common communication and awareness. Undeniable benefits will continue to accrue to the technology suppliers. But even beyond that, there will almost certainly be a significant positive macroeconomic impact from bringing so many new people into the global economic system.