Demonstrating the brokerage’s growing attention to IT markets, Merrill Lynch & Co’s technology teams have polished their crystal balls to offer their opinion on what’s around the corner. Growth in the semiconductor market is being driven by the communications equipment industry which, the report says, is usurping PCs as the key factor behind demand. However a long-term ‘downtick’ in the semiconductor equipment sector is going to drive significant consolidation. As computer equipment manufacturers re-engineer the businesses around build-to-order and low inventory models so the electronics equipment industry supply chain is being forced to transform itself from its traditional supply to a demand- driven model. Merrill figures data traffic bandwidth requirements are close to exceeding voice – over physical networks, not wireless – and that with data traffic expected to consume about 80% of all bandwidth by 2003 there will be significant investment opportunities in companies building what it calls wireline equipment. Meantime it’s putting its belief in the emergence of a new hardware market for appliances – clients, thin servers, PDAs, cell phones, home appliances, hybrid devices but essentially consumer devices – representing a shift from general-purpose to specialized computing. In software Merrill believes a new breed of internet-based enterprise applications will deliver better value propositions for improving the manufacture and delivery of goods and services than traditional ERP. Inevitably, it comes with a new acronym. Merrill terms it Corporate Optimization and Execution Software (COES). It believes deployments tend to be shorter, involve fewer end users, and provide a faster return on investment than ERP solutions. COES, the brokerage thinks, will also enhance the revenue generation of ERP vendors. It forecasts the $500m COES market could double annually to be $8bn by 2002. It also thinks a new wave of consolidation is about to hot the near-mature technical and design software markets. Its long-term view is that consumers will drive the information technology industry with the number of technology users rising from 100 million to 1 billion users over the next ten to 15 years. However for this to occur the complexity must be taken out of computing. IDC estimates the number of web users could double from 50 million last year to 100 million in 1998 and reach to 200 million by 2001 with up to 25% of homes online. Appliances will outsell PCs by 2005, certainly in units, it thinks, and will capture the majority of new application development just as PCs drew the application development market away from the mainframe market. PCs, like mainframes, won’t disappear (mainframes are still a $17bn market). It quotes Xerox Corp chief scientist John Seely Brown who says When it is written, the history of personal computers will be quite simple. In the beginning there were no computers. Then there were computers. Then they disappeared. They didn’t go away completely. They faded into the background. Although client appliances will have lower margins than servers this does not mean that Far East consumer electronics vendors will dominate, although Wintel will be less important factor. Although appliances may be bundled into a service the way cell phones are today, current consumer PCs are still more expensive than the network services they use.
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