Let’s say we’re in another positive cycle of better times for Micron. We’ve been through them before; the most notable and mind-altering one was in the mid-1990′s. Although it got eclipsed by the Internet bubble a few years later, it was a heady time and everyone wanted to own Micron.

The problem for me as a growth investor is that Micron seems to be just a new-age commodity company. Memory sizes are growing so Micron will ship far more “bits” every year. But thanks to advances in density they are basically shipping the same number of chips. (Micron fans will point out that they are expanding lines and shipping more chips but let’s just think about it like the “same store sales” model. In that analogy Micron grows by adding stores but the stores themselves don’t grow.)

To put a consumer perspective on it I buy a USB key or two every year for the family and pay around $10. So it’s the same $10 per year over many years. Not a bad business if you consider the millions sold but not growing either. It’s true I get a 4GB or 8GB key now versus the 128MB I was getting a few years ago but Micron had to bear the capital investment and development cost to get my $10 again.

Of course Micron sells other types of memory but it’s all the same. You get one or two sticks of RAM for your laptop and they just have twice as much memory on them every year. Same two sticks, same price as long as you don’t try and buy at the tip top of the density curve.

In some ways it reminds me of EMC. A little less than a decade ago EMC was trading at book value and generating huge amounts of free cash flow (FCF) It was the one and only time I bought a disk drive stock. However, EMC has acquired many software companies to improve the dynamics of their business. They were very fortunate in their purchase of VMware which now is talked about more as a value driver than the company itself.

Sometimes it doesn’t work out so well if the acquisition comes at too high a cost (Veritas comes to mind) but that certainly doesn’t preclude the acquisition strategy from starting to improve the dynamics of the business. Of course some companies, like Dupont and 3M, have figured out how to innovate enough around pseudo-commodity markets to enjoy brand-like margins and better growth.

It appears that Micron is headed for a great year ahead with improved demand, stable to improved pricing with limited planned capacity additions. This will allow the company to generate close to $2B of FCF.

But the up cycle has always been followed by the down cycle where capacity comes into the market, usually just when demand is starting to ebb and prices are falling. So most investors discount the down cycle on the way up. (This is the same way the auto companies used to trade. As senior analyst Dave Healy used to say “you buy them when their PE is infinite and sell them when the PE hits 4x.”)

Most of the semiconductor companies we follow have substantial IP and software in thematic areas we invest in like the Cloud, Mobile Internet or RealVR. This year may be the last good chance Micron has to do something very strategic and transition the company to a model that attracts long-term growth investors.

Should they buy a GPU company? That’s an interesting thought.

[Disclosure: I own a bit of Micron here because I think it can move higher given the fundamentals and market conditions, but it's not and will never be a long-term holding unless something changes.]

Leading bank and investment-firm CIOs, IT directors, staff technology gurus and the like spoke February 11 at the New York City conference “Web Services/SOA on Wall Street” Their theme could have been “SOA is not on Wall St. yet” but that’s probably good news for the supplier community that packed the conference with new technology value propositions. The slow uptake of SOA means the large systems suppliers such as IBM (IBM) and HP (HP) have not run away with all the services oriented architecture (SOA) business already.

Listening to the Wall St. information-technology (IT) gurus is important because they and their peers in The City and Switzerland and Singapore are usually two or more years ahead of the curve in terms of IT implementation. When it comes to investing in (or marketing) IT, finding out how it plays in Peoria first is not good advice. So in that light, where does SOA stand?

The general feedback from the presenters, most of whom are in varying stages of evaluating or implementing SOA for their firms, is that Wall St.’s own culture of silo operations is going to make SOA a tough sell. SOA helps eliminate IT silos but if the business itself is siloed, it does not want to share its IT resources with the other departments. The speed of migration to SOA by industry may be determined by the extent it is or wants to remain siloed for business rather than technology reasons.

Secondly, SOA does not mean web services to these guys. All of the buzz about mash-ups and social computing has a bad feel to it if an enterprise has concerns about governance, security, and risk aversion. Or has governments breathing down its necks with those concerns. That’s certainly true of Wall St. but increasingly, it’s just as true of Main St.

As is often the case, the vendors sponsoring the conference wanted to push the IT users on to the next set of buzzwords. To heck with the title, “Web Services/SOA on Wall Street,” how about complex event processing and Enterprise 2.0? Wall St.’s answer, “let us walk before we run.” One of the best lines of the day: Look at the complexity of the Google (GOOG) infrastructure. And that’s “just simple event processing.”

The implications of this, as I have written about here and here and elsewhere, is that SOA is going to permeate the world’s computing infrastructure slowly, just as client/server computing did beginning 20 years ago but probably not reaching a tipping point until after the Y2K scare passed. Similarly, by the time SOA happens, the industry will be on to a whole new set of buzzwords. SOA will eventually have a major technological impact but very little impact on investment strategy.
– Dennis Byron

Tags: service oriented architecture, SOA, Enterprise 2.0, mashup, CEP, web services

UPDATE: Or maybe it’s Novell? (NOVL)”

Iona (IONA) announced February 8 that it is likely maybe possibly thinking it might get acquired.

It’s a two-fer winner for this analyst’s recent predictions in that the likely acquisition is

An example of another independent middleware player biting the dust after the Oracle-BEA acquisition and right on the heels of Workday’s acquisition of Cape Clear on February 5

A likely example of an open source software (OSS) supplier pairing up with a proprietary supplier

I do admit that the first prediction–the rapid reduction of independent middleware choices for users–is not that earthshaking. It’s the natural result of the commodization and coagulation of the middleware stack that I began researching at IDC in 2000. Also I appreciate the comments on my earlier blog post by Giva Perry of gigaspaces who points out that there is a new generation of middleware emerging that could change the market dynamics. I will dig deeper into Giva’s ideas in upcoming research.

The second prediction vis a vis Iona is a little more out there. There’s nothing in the press release saying the possible suitor is a “proprietary” software supplier or even a software supplier. Apparently under Irish or EU law, we’ll know pretty soon who the suitor is. It could be Red Hat (RHAT) in which case my prediction is wrong. More likely it’s IBM (IBM), TIBCO (TIBX) or Sun (JAVA). Most likely, it’s a telecom (where Iona has a big presence) or a packaged applications suppliers, acquiring Iona for the same reason Workday acquired Cape Clear.

Of course there’s another disconnect: Although Iona has positioned itself as an OSS player for the last few years, it is clearly in the camp we describe in our research as proprietary/OSS hybrid (see summary feature articles that we release via ebizq.net). So when the OSS blogosphere goes crazy congratulating itself after the likely maybe possible deal goes through, don’t ratchet up your OSS valuation charts. Iona has been in the middleware business since even before the term middleware was widely used and has only adopted an OSS facade in the last few years.

– Dennis Byron

Tags: Iona, open source, TIBCO, gigaspaces, OSS, IBM

We can crunch the numbers SAP (SAP) released today from now until when the SAP 20-F comes out in March or April, and still not explore all the modeling possibilities. I have applauded SAP in the past for its transparency in meetings like this—both explaining past results and future plans—with pretty solid numbers. And simply because modeling nerds such as me like having this kind of data.

But I have been critical of SAP’s Core Enterprise Applications Vendor Share metric, most recently at the link noted. One interesting factoid that I saw in the SAP presentation January 30 was a list of the vendors it uses in its Core Enterprise Application Vendor Share market claims. Perhaps this list has been released before but I don’t recall seeing it.

Now I think my criticism is justified. Why Synopsys (SNPS) but not Cadence (CDNS)? Why some financial services software suppliers but not SunGard? Why Cerner (CERN) but not the HBOC-heritage product revenues within McKesson (MCK) or the Shared Medical Services heritage product revenue within Siemens (SI)? Why Parametric (PMTC) but not the UGS-heritage product revenue of Siemens and Autodesk (ADSK)? Why Intuit (INTU) but not Sage (London: SGE.L)? Why Lawson (LWSN) but not Exact (on Euronext Amsterdam)? Why Interwoven (IWOV) and Vignette (VIGN) but not the Documentum-heritage product revenue within EMC (EMC)? And on and on.

I suspect the reason is not a matter of SAP trying to hide anything but has something to do with the availability of the data, much of which is buried in large company financial reports. But that’s the issue. A market measurement needs to include both.

The real important questions from an investment perspective are:

Did SAP gain or lose ERP market share against Oracle (ORCL) and Microsoft (MSFT) in 2007. Probably it lost.

Did SAP gain or lose middleware market against Oracle, IBM (IBM) and Microsoft in 2007. Probably it gained based on the NetWeaver figures released on January 30 (even accounting for the Business Objects (BOBJ) and BEA (BEAS) acquisitions).

Did SAP gain or lose enterprise applications market share against Microsoft’s former Great Plains/etc. business buried within the Microsoft Business Division as well as other SME-oriented enterprise application offerings? Probably it held its place.

The core enterprise application vendor market share metric doesn’t help answer any of these questions. And I am not going to try to correct it because at least 20% of the vendors have gone or will go away (BEA, Business Objects, Cognos, Manugistics and Kronos; the latter because it has gone private).

I say “at least” because it is very likely more of this group will merge or be acquired in the next year.–Dennis Byron

Tags: ERP, NetWeaver, SAP, Oracle, Business Objects, BEA Systems

Scheer today announced that it is an “early partner” for SAP’s Business ByDesign (BBD) offering to small and medium enterprises (SME) in North America. If it takes four months to line up an “early partner,” when can we expect some BBD partner partners?

The announcement is in line with SAP’s usual lightning speed when it comes to its approach to the SME market and is yet another example of SAP’s keen sense of what it takes to market applications software through partners. The January 14 press release (see BusinessWire; not available on either web site as of time of this blog post) begins with the following:

IDS Scheer… today announced it has signed a Memorandum of Understanding with SAP America Inc. in order to express its willingness to support SAP in its efforts to build a partner ecosystem and distribution model for SAP® Business ByDesignâ„¢.

You have got to be kidding me!

I am not sure why any SAP (SAP) SME channel partner would go to Scheer for BPM anyways but I am astonished that the best that SAP can get out of its oldest and most loyal partner–after two years of talking about BBD and four months since formally but tentatively announcing BBD–is a “Memorandum of Understanding” “expressing its willingness” “to support SAP.”

If it weren’t for the fact that Scheer has been a BusinessOne partner for 10 years, perhaps the best SAP could have done was a letter of intent instead of a memorandum of understanding.

I’ve been out of marketing for 20 years but why on earth would anyone publicize such a half-hearted endorsement?

It’s common at the end of calendar years, to think back and think ahead. At least that’s the case at the end of Gregorian calendar years when there is so little daylight here in the mid to northern latitudes of the Northern hemisphere and nothing else to do but think.

As an aside, how come the political-correctness police haven’t eliminated a calendar named after a pope (or at least renamed it)? And do people in Australia and Chile think “southern” is pejorative the way lefthanded people think of “right?” The guy who promotes this map must think so:

Which takes me full circle to thinking back and thinking ahead.

Whatever happened to the Factory of the Future? GM MAP and all that stuff?

And whatever happened to the Software Factory?

Well on the Factory of the Future question, Google didn’t turn up much written after 1990. I suspect it all happened with a different buzzword a la the way articfical intelligence is all around us but no one dares whisper the term AI.

But I don’t think IBM (IBM) has forgotten about the Software Factory and I think it wants to own the machines that run the Software Factory of the Future. The December 11, 2007 IBM announcements about new Rational capabilities is just an example. It means there are some legs in the software development tools market despite the open source software (OSS) development trend. While heavily funding OSS as a tactical move vs. Microsoft, IBM is really thinking long term to the Software Factory.

A big part of my research agenda is OSS but I am constantly amazed at what a cottage industry OSS development is. I don’t mean it literally takes place in homes per conventional wisdom (in fact it is completely dominated by IBM and other leading IT supplier funding) but it is still highly individualistic (which means full of errors that no one else can correct because they don’t know what the individual that made the error was thinking). That fact means that software development today is still figuratively where shoe manufacturing was in the 1860s when my great grandfather beat leather around a last in what is now my sister’s kitchen. A generation later his son (not my line of the family which is why I think for a living rather than make something useful) founded Plymouth Rubber to make soles and heels with a machine. Is the software industry still a generation away from automating the manufacture of its piece parts?

If so, IBM looks like it plans to be there. Of course, given IBM’s overall business strategy of building up its IT services businesses and becoming more of a management services provider you constantly have to ask whether it will spin Rational back out the way it has spun out PCs to Lenovo and so forth. You never say never but in the short term, the answer is probably no. PCs had truly become a commodity. Because of OSS, software is almost the opposite of a commodity. Even layers of the software stack such as application/web server software that I have dubbed commodity still offer dozens of choices. Rational development tools give IBM a leg up on everyone else in the services business in dealing with these choices. Almost everyone else in the services business such as HP (HP) and even in higher layer parts of the software industry is highly dependent on OSS for their tooling. Or, like SAP (SAP) they still have to build their own tools.

This recent Rational announcement tells me IBM’s services guys do not want to be caught sitting in a little shoe shop waiting for the leather guy to drop off a hide–Dennis Byron