3 Companies That Can Dominate IT in 2012, 3 That Won't
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
IT has held its place in history as one of the most competitive but profitable industries of all time and there is much to gain or lose in this area of the market. A simple new innovation or acquisition can mean the difference between a record breaking year and the wind being taken out of a company’s sales as it struggles to compete. Which of the following companies will dominate IT in 2012 and which will fall prey to invading competition and a shrinking market share?
Google (NASDAQ: GOOG) is a technology giant and owns the largest search engine in the world along with YouTube, its Android smartphone platform and a host of other interests, making it a far reaching and insulated company. Google was recently named the best place to work by Fortune Magazine and has hired an additional 7,000 employees over the past year while enjoying steady growth over the past several years. However, Microsoft (NASDAQ: MSFT) is capitalizing on an opportunity to work with Baidu.com, China’s largest search engine after Google decided to pull its operations from China’s mainland because it disagreed with the government’s demand to censor its searches.
While Google wins the ethics battle, Microsoft has positioned itself to take advantage of the largest market in the world after Google closed the door on the opportunity. Microsoft will provide search algorithms for Baidu’s 10 million English search requests each day and has gained a foothold in the Chinese search market which Baidu.com holds a 75% market share in. Google stock has dropped from $670 per share to $585 and is flirting with its 100 day simple moving average. If it drops another $10, it will dip below its 300 day moving average and could continue in a free fall, making this a stock I want to watch and wait on.
Meanwhile, Microsoft’s stock and profits have taken huge leaps over the past year, making this a hot stock that will only get hotter as the year goes by. Its new partnerships with Baidu.com and with Nokia (NOK) will be the driving force behind its rise this year as Nokia uses the Windows 7 platform to compete in the smartphone market and Microsoft takes a shot at Google in 2012. I believe this is a clear and definite buy and suggest taking a position here before Microsoft breaks the ceiling.
Oracle (NASDAQ: ORCL) is positioned to for a climb in 2012 largely in part due to its recent acquisition of Sun Microsystems in 2009, which owns the Java platform millions of websites implement in some form. Profits have risen from $5.6 billion in 2009 to $8.5 billion in 2011, showing the real impact of the assimilation of Sun for Oracle, which is competing for dominance in the database and enterprise IT services markets. The only downside to Oracle is that its stock hasn’t been growing with its profits, showing a lack of confidence from investors thus far. I believe that this year will be the year Oracle gets some attention, however, after showing three years of consistency. Its stock has already shown an upward slant over the past month.
IBM (NYSE: IBM) stock has seen a steady rise over the past year that I believe only sets its momentum going into 2012. IBM profits have consistently grown by around $1 billion per year, from $12 billion net revenue in 2008 to $14.8 billion in 2010. This leader in information technology derives 65% of its income from outside of the United States and has interests in over 170 different countries. I believe that IBM has little to lose in 2012 and will continue the dominance it possesses in the markets it rules, making IBM a buy this year.
VMWare (NYSE: VMW) looks shaky at best in 2012 due to its inconsistency in the market and I don’t think it will make a significant rise or fall this year. Over the last year, the stock had a high of $106 per share and a low of $76 but currently sits at $86, which is within $1 of where it stood a year ago. Needing to predict its jumps and falls in order to protect your investment makes this a risky stock to take a position in and I would search for a more reliable stock in its place.
Salesforce.com (NYSE: CRM) has a unique business model and leads the customer relations management software industry, but I don’t think this company is profitable enough to reverse the downward slope its stock has been treading. Salesforce.com’s profits fell in 2010 to $64 million from $81 million the prior year and it finished the last two quarters in 2011 with consecutive losses of about $4 million each quarter. This is another company that I would pass on in favorable of a more consistent tech powerhouse that possesses a positive outlook.
As much as I disagree with Microsoft’s methods, I believe Microsoft will be the big winner in 2012 with IBM and Oracle posting gains as well. Google is a bit shaky but I don’t believe the stock will experience catastrophic failure in 2012. I would refrain from buying Google and hold if I had a position in it while staying away from Salesforce.com and VMWare, as neither look very attractive to me in 2012.
Motley Fool newsletter services recommend Salesforce.com, Google, Microsoft and VMware. The Motley Fool owns shares of Salesforce.com, Google, International Business Machines, Microsoft and Oracle. IUMFool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.