Great News for Large-Cap Tech
Who has all the money these days? While the government has most of it and can make more of it when it wants, it also owes a lot of money. Rather, large corporations are best off these days, and they aren’t investing much in new plant, equipment, and/or employees. But there is hope out there in the universe of cash-hoarding corporations, and that great hope is in enterprise information technology (IT). Forget retail technology; it’s the enterprise-level IT suppliers that stand to be the big beneficiaries of corporate spending over the next several years.
For a corporation, things are very simple. Company management might ask: should we build a new plant for a new line of windmills? The answer, of course, would be “No,” and they’d then contract it out to China. They ask: should we hire a few more people in the sales department, customer service, or IT support? “Maybe,” they’d answer, “but no full-time employees and let someone else handle payroll.” Management decides they really need to update the company’s e-commerce efforts, asking: should we hire more computer programmers? “No” would be the answer again and they’d contract it out to India. So, who wins in a system like this?
We know the outsourcing corporation wins—it’s winning already. Within this system, though, there are players that are required for it all to work seamlessly and efficiently, the one group poised to benefit from it all: application software, database management, server and storage, cloud and IT “strategy alignment.”
The cash hoard is about to be unleashed, but on enterprise IT, not new plant or equipment, and certainly not full-time employees. Some large-cap companies in this group include Oracle Corporation (NASDAQ/ORCL), International Business Machines Corporation (NYSE/IBM), SAP AG (NYSE/SAP), and Infosys Limited (NASDAQ/INFY). The numbers for enterprise IT companies already coming in are decent, but I think they’re going to get a whole lot better. Corporations have money to spend—on efficiency, data management, and storage. What better way than to invest in efficiency in an uncertain economy? How else does a corporation keep its earnings from falling?
An old friend of mine worked in the IT department of a large insurance company. His whole department got outsourced to International Business Machines (IBM), which took over the company’s data requirements along with other customers. He became the outsourcing go-to guy for other corporations, and finally, after a few years, IBM outsourced his entire outsourcing department to India. Talk about embarrassing. The outsourcing IT guy got outsourced himself—twice. No more job in IT. Now he works in the oil and gas business and is doing fine.
Right now, corporate balance sheets in the U.S. are, for the most part, in excellent shape. There’s a lot of money floating around, but it’s not being invested in new business operations. What I believe we’ll see over the next several years is a huge spending spree of corporate cash on application software IT, anything and everything that can make a large corporation run more efficiently and with the smallest amount of personnel possible. This is the group of companies that is going to benefit. And Oracle is the perfect example.