Another front has been opened in the ongoing war between two tech giants, Google (Nasdaq: GOOG) and Apple (Nasdaq: AAPL). That front is consumers' homes as last month Google started a six-month test of a device that would hook into a home WiFi network in addition to linking to other devices in the home through Bluetooth connections.
The new device was first hinted at in December when the company filed an application with the Federal Communications Commission for permission to test a prototype outside of laboratory conditions. It is believed the device is a key cog in Google's goal to establish a home entertainment hub with the capability of streaming content between various devices and with Google at the center of it all.
The development of this device is just the latest evidence of the company's push into hardware. It made a bold move into hardware with its proposed purchase of Motorola Mobility Holdings (NYSE: MMI). The pending deal will not only give Google access to Motorola's portfolio of patents but also put the company into the mobile phone and TV set-top box manufacturing businesses.
Another signal that Google is serious about hardware is the recent hiring of Simon Prakash away from Apple where he was senior director of product integrity, Apple's best quality product engineer. Mr. Prakash is a leading expert in high-volume manufacturing of consumer devices like mobile phones. It is assumed he will be deeply involved in the manufacturing process for this new home entertainment hub device as well as Motorola phones.
After all, what better way to fight Apple's reinvention of mobile computing through its iPhone and iPad devices than with one of its own senior executives.
The pending move into hardware is a real shift in strategy for Google. Previously, the company had always worked closely with hardware producers like phone makers to advance products such as its Android operating system. Another example which comes to mind was the introduction last year of its Google TV service software to bring its services to televisions where it worked closely with television manufacturers.
The question for Google investors is whether this shift in strategy makes sense.
It may not. It already has one of the most profitable business models in existence. Its 65% gross margin, thanks to its search advertising business, ranks it up with Microsoft (Nasdaq: MSFT) and its Windows business with its 73% gross margin.
Look too at the recent hardware successes that Microsoft and Amazon (Nasdaq: AMZN) had. At Microsoft, the Xbox game console became the top seller in the U.S. with revenues for it almost matching the revenues from Windows. Yet since it's a low-margin business, it pushed Microsoft's gross margin to its lowest level in several years. And everyone knows that Amazon's very popular, low-margin Kindle ereaders have been one of the key factors weighing down Amazon's profitability with gross margin of only 20%.
But Google has to do something as Apple is setting the rules for the future of technology right now. Google has to somehow gain closer control over the integration of hardware, software and services rather than letting Apple set the agenda. Apple is so very successful at doing that too. In the last quarter, its operating profit expanded by 8 percent to nearly 38%, within a percentage point of both Google and Microsoft.
Google has to hope its hardware, when it hits the market, will help it regain some ground previously lost to Apple. It really has no choice but to move into hardware or cede the consumer technology battlefield to Apple.
This article was originally written for the Motley Fool Blog Network. Please make sure to read all of my articles daily at the Motley Fool, http://blogs.fool.com/tdalmoe/
Wednesday, February 29, 2012
Tuesday, February 21, 2012
The Healthy Food Trend
U.S. food and food retailing companies are rolling out aggressive healthy food initiatives to generate positive PR and to stay one step ahead of government regulations.
The world's largest retailer Walmart (NYSE: WMT) is the latest company to jump on board the healthy food bandwagon. Beginning in April, it will use “Great for You” labels on its own brands to highlight food products they deem to be healthy for consumers and meet criteria on protein, fiber, fat, sugar and sodium. The company specifically said the initiative would give mothers a simple and reliable way of identifying good food to feed to their children.
Walmart is using its own internal labeling system to highlight fruit, vegetables, whole grains, lean meats,yogurt, snack bars and frozen foods that have low levels of fat, sugar and sodium. This is an important milestone for the industry as a whole since Walmart is often considered to be the industry standard setter.
But Walmart is far from the first company to come out with healthy food campaigns and labeling systems. Other food retailers have already gone down that path. The NuVal labeling system scores food for nutrition on a 1 to 100 scale and was launched in 2009. It is currently being tested by Kroger (NYSE: KR), the biggest U.S. supermarket company as measured by sales.
There are many other such examples of companies emphasizing healthy foods in the industry. Perhaps best known is the healthy foods retailer Whole Foods (Nasdaq: WFM) which has a “Health Starts Here” line of food products that contain no processed food, no added oils or sugars, and have a high vegetable and fruit content.
It's not just food retailers who are emphasizing healthy foods, but food companies themselves.
General Mills (NYSE: GIS) last year said its organic food business was now a “growth engine” for the company and that the success there would transform its entire product line. Its emphasis on health can also be seen in its latest ads for children's cereals which talk about how the cereals are loaded with more healthy whole grains than ever before.
Then there is PepsiCo (NYSE: PEP) which, led by its CEO Indra Nooyi, has gone on a major health food push. Its goal is to double the revenues it receives from nutritious products by the end of the decade. Pepsi though is also turning into a case study of how not to jump into the long-term healthier food trend.
While making its push into healthier foods, Pepsi has been criticized by many as forgetting about its core business – selling carbonated beverages around the world. As its latest earnings report shows, sales of its core Pepsi brand remain flat at best globally as it continues to lose ground to rivals.
Pepsi's example highlights the possible danger lurking for investors looking to get in on the growing trend toward healthy food. The risk is that companies may overreact and place too much of an emphasis on it as Pepsi management has done. This emphasis on health is confusing many times for food companies (and their research labs) which for decades have emphasized taste above all else.
Yes, there is a definite growing appetite for healthier foods among Americans. But companies should be careful about moving too far from what made them successful for so long, like Pepsi.
So for investors looking to invest in this trend, the safer bet may be to go with the food retailers rather than the food companies themselves. And preferably one that is already identified with healthy foods such as Whole Foods.
This article was originally written for the Motley Fool Blog Network. Please check out my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/
The world's largest retailer Walmart (NYSE: WMT) is the latest company to jump on board the healthy food bandwagon. Beginning in April, it will use “Great for You” labels on its own brands to highlight food products they deem to be healthy for consumers and meet criteria on protein, fiber, fat, sugar and sodium. The company specifically said the initiative would give mothers a simple and reliable way of identifying good food to feed to their children.
Walmart is using its own internal labeling system to highlight fruit, vegetables, whole grains, lean meats,yogurt, snack bars and frozen foods that have low levels of fat, sugar and sodium. This is an important milestone for the industry as a whole since Walmart is often considered to be the industry standard setter.
But Walmart is far from the first company to come out with healthy food campaigns and labeling systems. Other food retailers have already gone down that path. The NuVal labeling system scores food for nutrition on a 1 to 100 scale and was launched in 2009. It is currently being tested by Kroger (NYSE: KR), the biggest U.S. supermarket company as measured by sales.
There are many other such examples of companies emphasizing healthy foods in the industry. Perhaps best known is the healthy foods retailer Whole Foods (Nasdaq: WFM) which has a “Health Starts Here” line of food products that contain no processed food, no added oils or sugars, and have a high vegetable and fruit content.
It's not just food retailers who are emphasizing healthy foods, but food companies themselves.
General Mills (NYSE: GIS) last year said its organic food business was now a “growth engine” for the company and that the success there would transform its entire product line. Its emphasis on health can also be seen in its latest ads for children's cereals which talk about how the cereals are loaded with more healthy whole grains than ever before.
Then there is PepsiCo (NYSE: PEP) which, led by its CEO Indra Nooyi, has gone on a major health food push. Its goal is to double the revenues it receives from nutritious products by the end of the decade. Pepsi though is also turning into a case study of how not to jump into the long-term healthier food trend.
While making its push into healthier foods, Pepsi has been criticized by many as forgetting about its core business – selling carbonated beverages around the world. As its latest earnings report shows, sales of its core Pepsi brand remain flat at best globally as it continues to lose ground to rivals.
Pepsi's example highlights the possible danger lurking for investors looking to get in on the growing trend toward healthy food. The risk is that companies may overreact and place too much of an emphasis on it as Pepsi management has done. This emphasis on health is confusing many times for food companies (and their research labs) which for decades have emphasized taste above all else.
Yes, there is a definite growing appetite for healthier foods among Americans. But companies should be careful about moving too far from what made them successful for so long, like Pepsi.
So for investors looking to invest in this trend, the safer bet may be to go with the food retailers rather than the food companies themselves. And preferably one that is already identified with healthy foods such as Whole Foods.
This article was originally written for the Motley Fool Blog Network. Please check out my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/
Wednesday, February 15, 2012
Welcome to the CyberWar Front
The way wars are fought is changing rapidly.
From conflicts using hardware – planes, ships, tanks, guns and troops – wars in the future are more likely to be fought using computers and malicious software. In other words, cyber warfare.
Companies involved in the defense business like Boeing (NYSE: BA), Lockheed Martin (NYSE: LMT) and others are steadily shifting their business to fighting such a war. The move has been accelerated in the light of a number of high-profile attacks such as the Stuxnet attack in 2010 on Iran's nuclear program.
There is a virtual feeding frenzy among these companies and specialist national security firms like Mantech International (Nasdaq: MANT) and CACI International (NYSE: CACI) right now to provide the U.S. government the means to protect against a cyber attack or even to launch one of its own on enemies.
Many of the bigger companies like Boeing are expanding in this area largely through the acquisition of small companies that specialize in cyber warfare with more than a dozen acquisitions occurring in 2011.
All of the companies in this sector are hoping to get a piece of the expanding U.S. budget for cyberarms. American defense, intelligence and homeland security agencies currently spend about $10 billion annually on cybersecurity according to software firm Deltek.
That is a very small portion of the Pentagon's $600 billion annual budget. But what should grab investors' attention is the fact that the $10 billion figure is expected to climb by at least 9% a year for the foreseeable future, even as the rest of the Pentagon budget is facing cuts.
Add to the Pentagon's cyber budget what private companies are spending on cyberarms and fighting against cyber criminals, and the cyberwar market is more like a $100 billion market in the United States alone, says Northrup Grumman (NYSE: NOC) executive Kent Schneider. By the way, cyberarms already accounts for over $1 billion of the company's $27 billion in annual revenue.
Outside the United States, spending on cyber warfare has also picked up. Since the Pentagon's Cyber Command (with 10,000 people when fully staffed) became operational in 2010, more than a dozen countries, including the U.K. and France, have moved to setting up a similar operation.
Unfortunately, even with the military preparedness for cyber warfare, the U.S. is still very vulnerable to cyber attacks.
The fact is that about 85% of the internet is under control of private companies which aren't spending much on protecting their piece of cyberspace. This is particularly troublesome when it comes to vital infrastructure.
Experts in cybersecurity believe that the companies which control the U.S. electric grid, transportation and telecommunications networks need to invest into safer infrastructure.
An attack on any key part of the country's infrastructure could cripple the U.S. economy. It is estimated that damage from a single wave of cyberattacks on critical infrastructure could exceed $700 billion.
Some industries are taking the threat seriously. Utilities, for example, are working on measures to defend against cyberattacks. Deployment of cybersecure systems is expected to take place by 2020.
But there is a lot of work to be done by both private companies and the government when it comes to cyber defense, creating vast opportunities for companies involved in this sector.
Investors should expect an acceleration of the demand for cybersecurity in the years ahead from both the government and private enterprise. This can only benefit companies in the sector.
This article originally appeared on the Motley Fool Blog Network. Please check my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/
From conflicts using hardware – planes, ships, tanks, guns and troops – wars in the future are more likely to be fought using computers and malicious software. In other words, cyber warfare.
Companies involved in the defense business like Boeing (NYSE: BA), Lockheed Martin (NYSE: LMT) and others are steadily shifting their business to fighting such a war. The move has been accelerated in the light of a number of high-profile attacks such as the Stuxnet attack in 2010 on Iran's nuclear program.
There is a virtual feeding frenzy among these companies and specialist national security firms like Mantech International (Nasdaq: MANT) and CACI International (NYSE: CACI) right now to provide the U.S. government the means to protect against a cyber attack or even to launch one of its own on enemies.
Many of the bigger companies like Boeing are expanding in this area largely through the acquisition of small companies that specialize in cyber warfare with more than a dozen acquisitions occurring in 2011.
All of the companies in this sector are hoping to get a piece of the expanding U.S. budget for cyberarms. American defense, intelligence and homeland security agencies currently spend about $10 billion annually on cybersecurity according to software firm Deltek.
That is a very small portion of the Pentagon's $600 billion annual budget. But what should grab investors' attention is the fact that the $10 billion figure is expected to climb by at least 9% a year for the foreseeable future, even as the rest of the Pentagon budget is facing cuts.
Add to the Pentagon's cyber budget what private companies are spending on cyberarms and fighting against cyber criminals, and the cyberwar market is more like a $100 billion market in the United States alone, says Northrup Grumman (NYSE: NOC) executive Kent Schneider. By the way, cyberarms already accounts for over $1 billion of the company's $27 billion in annual revenue.
Outside the United States, spending on cyber warfare has also picked up. Since the Pentagon's Cyber Command (with 10,000 people when fully staffed) became operational in 2010, more than a dozen countries, including the U.K. and France, have moved to setting up a similar operation.
Unfortunately, even with the military preparedness for cyber warfare, the U.S. is still very vulnerable to cyber attacks.
The fact is that about 85% of the internet is under control of private companies which aren't spending much on protecting their piece of cyberspace. This is particularly troublesome when it comes to vital infrastructure.
Experts in cybersecurity believe that the companies which control the U.S. electric grid, transportation and telecommunications networks need to invest into safer infrastructure.
An attack on any key part of the country's infrastructure could cripple the U.S. economy. It is estimated that damage from a single wave of cyberattacks on critical infrastructure could exceed $700 billion.
Some industries are taking the threat seriously. Utilities, for example, are working on measures to defend against cyberattacks. Deployment of cybersecure systems is expected to take place by 2020.
But there is a lot of work to be done by both private companies and the government when it comes to cyber defense, creating vast opportunities for companies involved in this sector.
Investors should expect an acceleration of the demand for cybersecurity in the years ahead from both the government and private enterprise. This can only benefit companies in the sector.
This article originally appeared on the Motley Fool Blog Network. Please check my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/
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