2013 was a great year for tech investing. Twitter (NYSE:TWTR) may have stolen the show with its high-profile IPO, but it put the spotlight on the increasing number of tech companies with valuations over a billion dollars. 2014 is looking to be even better, with some tried and true companies poised to capitalize on big shifts in the landscape.
1. Micron (NASDAQ: MU)
Micron Technology has been a fixture in computer memory for 35 years. It grew from a simple outfit in Boise, Idaho to a full-blown multinational with facilities in North America, Europe, and Asia. Its memory products can be found in computers, servers, network hardware, mobile devices, and embedded devices. Micron also has close ties to transportation and industrial manufacturing.
There’s a good chance you own a device that uses Micron components.
After more than a decade of litigation, Micron finally settled a patent dispute with competitor Rambus over DRAM designs in 2013. Micron will pay Rambus 0.6 percent royalties on all products that fall under Rambus’ patent portfolio for the next seven years. Each quarter, Micron’s royalties will be capped at $10 million.
Even though the company has to pay licensing fees on certain designs, this is beneficial for two reasons. First, it finally cuts of any ongoing legal fees that Micron has incurred for this case. Secondly, and far more importantly, Micron now has a measurable range of loss for design licensing.
Since it’s been engaged in litigation with Rambus, Micron has claimed it could not estimate the range of possible loss until the case was settled. Now clearer forecasts can be made.
2013 saw heavy DRAM market consolidation as Micron closed the deal to acquire bankrupt memory company Elpida, Micron’s third-largest competitor. The acquisition brought Micron a new fab in Japan, and a 65 percent controlling interest in the Rexchip facility in Taiwan that improved the US company’s position in the Asia-Pacific region.
More importantly, however, is the fact that Elpida was one of the main memory suppliers for Apple (NYSE: AAPL) and provies SDRAM for its iPads. For the last two years, Apple has attempted to diminish its reliance upon Samsung for components, and shifted orders to Hynix, Toshiba, Micron, and Elpida.
2. Paychex (NASDAQ: PAYX)
If “Buy American” is one of your slogans, you probably already know about Paychex.
As one of the top providers of payroll outsourcing, Paychex has offered its services to small American companies since 1971. Today, it competes with the likes of ADP and Intuit in a broad range of services including payroll and tax, benefits, personnel, HR, insurance, and time management.
2014 looks like it’s going to mean cloud services for Paychex.
Over the course of the 2013, it picked up a number of web-based tools to widen its line of cloud services. These included ExpenseWire, myStaffingPro, and ModelxChange. In Mid-November, the acquisition of these properties culminated in a new line of cloud accounting solutions: Paychex Accounting Online.
Paychex Accounting Online automates billing and invoicing and provides small businesses with real-time visibility of their cash flow and financials. It’s an important move into the financial Software as a Service (SaaS) space.
Paychex totaled $2.3 billion in revenue, a 2.3% increase over last year. Payroll services, meanwhile, amounted to $1.5 billion, or an increase of 2%.
Net income increased 4 % and EPS increased 3% to $1.56 per share.
Paychex President and CEO Martin Mucci provided the typical cheerleading, saying 2013 yielded the highest new business sales revenue for Paychex in more than five years, and record-setting customer retention. Here’s a bit more from the horse’s mouth:
“As we begin a new fiscal year, we expect to see solid growth as a result of our employees’ performance in sales and service delivery, as well as ourproduct and technology enhancements. This, combined with our financial strength, enables us to invest in promising opportunities, our employees, andexpand the returns we deliver to our shareholders,”
And in case you were wondering, one hundred percent of the company’s sales, support, and processing are still based in the United States.
3. Syntel Inc (NASDAQ: SYNT)
On the other side of the coin is Syntel, whose Modus Operandi is outsourcing and banking on currency exchange.
Syntel had a very strong 2013, experiencing 32% year over year growth, and a consistent string of upward earnings revisions. Earnings per share have risen at least 10% each quarter and revenues grew at least 9% in the same time.
The company recently opened a new development center in Baltimore, which is its fourth in the United States after Phoenix, Nashville, and Memphis. Since the whole idea of the company is IT and knowledge outsourcing, global expansion is a cornerstone strategy for Syntel.
In 2013, the company broke ground on a new development center in Tirunelveli, India. Because it does a lot of business in India, Syntel also expanded its existing facilities in Pune and Chennai.
Just four days ago, Syntel launched a new development center in Manila, Philippines in the PEZA special economic zone. Though the country has been in tumult since being hit with Super Typhoon Haiyan, it has kept its benchmark interest rates at record lows to help boost economic recovery, and inflation is expected to push the Philippine Peso even lower against the dollar.
The Rupee, meanwhile, sank in value throughout 2013, dropping 11.48% since January. India had the third largest value loss of all the world’s currencies, behind only Japan and Indonesia.
As the Rupee sinks, outsourcing to India becomes increasingly attractive to American companies.
4. Clearfield Inc. (NASDAQ: CLFD)
Clearfield deals in products and services essential to fiber optic communications networks, which it sells to telecommunicatons service providers.
Clearfield exploded upward in 2013, posting a 45% annual revenue growth and a net income growth of 78%. As a result, per share jumped by more than a quarter, and stock value shot up nearly 300% over the course of the year.
What’s the reason for the growth?
One reason is the FCC’s quest to provide affordable broadband access to the entire United States.
The FCC’s overhaul of the Universal Service Fund had a chilling effect on telecommunications service providers for the last couple of years, but now that’s no longer the case and smaller carriers are turning to Clearfield for its fiber services.
Clearfield’s performance is dependent upon whom it signs contracts with, and the U.S. Telecoms industry is such that a contract with a first-tier company could guarantee a long-term boon for an organization like Clearfield.
But there’s a much bigger development going on.
The real growth in fiber right now is on the backs of Internet companies like Google and Facebook who are sinking huge sums of money into building their own infrastructure. These companies are paying for their own data pipelines and leasing additional capacity (so-called “dark fiber”) from service providers.
In other words, content companies are building their own Internet.
Google, for example, controls more than double the amount of cable that network operator Sprint does. This activity drives up the demand for network hardware and services and thereby increasing its value. It’s a good time for Clearfield and its ilk.
5. Amazon (NASDAQ: AMZN)
Stock in Web retailer Amazon has been consistently gaining for the last 12 years…with a 658 % rise in the last 5. In 2013, it gained some $63 billion and then shifted gears by investing more capital into growth instead of returning it to shareholders.
After dominating web retail, becoming a prominent force in enterprise cloud services, and leading a revolution in e-book publishing, where could Amazon possibly hope to grow with this reinvestment?
The areas are many and diverse. Some are in early pre-launch phases, some are not yet launched, and some have already made headlines. Here are just a few:
- Grocery delivery (Amazon Fresh)
- Same day delivery with drones (Amazon Prime Air)
- Wholesale shopping for Prime members (Amazon Pantry)
- New short-story e-book publishing (StoryFront)
- Virtual Desktop Infrastructure for Cloud Deployments (Amazon WorkSpaces)
- Alternative Currencies for non-US markets (Amazon Coins)
The list goes on. Amazon is growing in all directions, and while many of these new ventures will not make it past the earliest stages, the company holds enough cash to experiment safely. With no end in sight for Amazon’s innovation, the climb will continue.
