The way digital identity is managed remains largely unchanged since the advent of the Internet with no system allowing a person to present verifiable credentials across institutions or geographic borders. Instead, identity administrators such as government agencies or commercial services house the unique credentials of their users in centralized datastores siloed from other authorities. This approach puts identity ownership in the hands of the issuer rather than the person claiming the identity. However, an emerging digital framework known as self-sovereign identity looks to shift control back into the hands of the user.
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Steve Milunovich’s mid-month update covers the coronavirus, VAR survey results, and cloud revenue/capex estimates.
In our quarterly networking update, Alan Weckel addressed tech trends, market growth, and competitive positioning. The switching market is $8.5bn and declined YoY in 4Q/19, the first decline in six years. Reasons include pushout of the 400g data center cycle and a tough comparison for Cisco in campus. Still, Alan sees future growth of 2-3% with 400g kicking in next year and campus supporting IoT and Wi-Fi 6.
Tech stock performance has been strong but narrow. In Exhibit 1, our technical team shows how the top five platforms averaged a 52% increase the past year compared to 10% for the rest of the S&P 1500. Our equally-weighted Wolfe Tech Universe (WTU) of 270 stocks has risen 26% the last year, only slightly above the S&P 500’s 23%. However, XLK, in which Microsoft and Apple are each 20% contributors, is up 52%—what a difference, clearly visible in the WTU and XLK charts’ relative performance lines. The dominance of platform companies—transactional and innovation—is the key trend of the last decade. We’d stay overweight platforms. Email us for a list of sector constituents.
The Wolfe Tech Universe rose 1.9% the past week, ahead of the S&P 500’s 1.6% gain. Semis led the way and now are solidly up for the year; their resilience in the face of the coronavirus surprises us. Software and Internet have the 3-month momentum while Hardware has faded (Exhibit 1). Top performers included Slack (+22%), RingCentral (+17%), Nvidia (+15%), GoDaddy (+14%), and MercadoLibre (+14%). Laggards were Wayfair (-17%), Insperity (-16%), CyberArk (-14%), Lyft (-11%), and Spotify (-9%).
Wolfe Research Tech Strategist, Steve Milunovich, hosted a webcast with networking expert Alan Weckel. Alan will have fresh numbers following Cisco's earnings. He will address market growth, vendor share shifts, 400g timing, and cloud spending.
The coronavirus or Covid-19 (a poor name) is beginning to impact tech. Mobile World Congress in Barcelona was cancelled after high-profile vendors bailed. More important, Chinese demand and the Asian supply chain are being affected. Alibaba’s CEO called it a “black swan event.” On p2 we provide quotes from recent earnings calls and conference presentations. Skyworks points out that a Sep-Dec outbreak would have been worse and that factories run at 50% utilization anyway in March-June. Other companies like Applied Materials are moderately reducing guidance, “de-risking” numbers because of the virus. Is it enough?
Last week we highlighted the overlap between energy and technology; here we discuss the intersection of building and technology with Don Reid, EVP of Business Development at Sustainable Living Partners LLC. Sustainable Living's (SLI) mission is to transform the real estate development and construction industries, which have not seen significant technological innovation for over 100 years. The company is delivering an enhanced urban living experience to the multifamily housing market at a lower cost and with significantly reduced energy and water footprint.
Our survey of 50 value-added resellers includes 25 US, 20 Europe, and 5 Asia. Most responses were taken after Jan 7, which is when Coronavirus hit the news. The ramifications of the virus are yet to play out and may be more negative than indicated by responses. Still, no Asian VARs see their 1Q business as better than 1Q/19. See our sister VAR Insights report out today for demand anecdotes.
We spoke with VAR contacts in preparation for the second wave of earnings and to get an early read on Coronavirus impact. See our companion VAR Survey out today for tabulated global VAR views.
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