Wednesday, April 8, 2009

Stimulus Fire Hydrant (Worldwide) should Benefit Networking Companies/Broadband

There is yet another TARP bailout today, this time for the insurance companies - not a surprise but frankly I have bailout fatigue so I am not going to even waste bandwith anymore on these things. Instead I am going to try to actually look at fundamentals like in the old days.

I have not looked at this sector in a long while, but the networking group is picking up some steam as the rotation into technology continues on. Unlike the move into consumer discretionary I can at least build some fundamental case for the networking stocks, mostly based on federal stimulus.

Here are 3 stories as I traveled the internets that caused my eyes to perk up.

First, news out of Australia for a massive $30B ($47B in Australian dollars) broadband network - something I thought was on President Broadband's agenda but once Pelosi got a hold of the "stimulus" plan it turned into pork barrel projects instead of actual investments in this country. And yes, I'm jealous to see so many countries making real investments during this time, rather than butterfly museums. [Meanwhile South Korea is out to get 1 Gbps out to everyone in a $25 Billion program] This was a talking point for Obama but it seems to have died once Congress got involved. (sigh)

GDP by country (2007)
  1. U.S. $13.8 B
  2. Aus $0.9 B
  3. South Korea $0.9 B
Via Bloomberg
  • Australia’s government may sell some A$9 billion ($6.4 billion) in bonds to fund a national broadband network, said Neil Hyden, chief executive officer of the government’s agency for debt sales.
  • The government will start work on a A$43 billion public- private partnership to build the network over eight years in the nation’s largest-ever infrastructure project, Prime Minister Kevin Rudd said yesterday. An initial A$4.7 billion will be allocated for the project from the Building Australia Fund set up by the government last year.
  • Up to 49 percent of the funds will be from the private sector. The venture's expected to take seven to eight years, and Rudd said the government intends to sell off its stake after five years.
  • The goal's to get 90 percent of homes and business up to 100Mbps speeds with fiber optic connection. Fast broadband's greatest benefit, he says, will be to promote a move to more knowledge-driven and creative industries, helping to transform Australia's economy.
Second, a story in USA Today titled "Tech Firms Eager to Gobble Stimulus Plans"
  • The biggest federal public works project since World War II offers tantalizing possibilities for the struggling tech market. President Obama's staggering $787 billion economic stimulus package, passed in February, could be a financial oasis — especially for an industry facing a precipitous drop in tech spending by economically ravaged corporations and consumers.
  • It allocates tens of billions of dollars for tech upgrades to energy ($4.5 billion for smart grids), health care ($20 billion for electronic medical records), broadband deployment and education.
  • The dizzying amounts have tech giants jockeying to land government contracts, the first expected to be awarded in the next few weeks. IBM (IBM), General Electric (GE), Cisco Systems (CSCO), Intel (INTC) and some well-positioned start-ups are among suitors poised to capitalize.
  • "This is a once-in-a-lifetime deal," says Sean Maloney, chief sales and marketing officer at Intel, which is working on broadband projects with governments in the U.S., Japan, Vietnam and others. "This dwarfs the Marshall Plan and the New Deal. It is unimaginably large, and will never happen again. It is incumbent on us to spend it wisely."
  • The government has allotted $7.2 billion for broadband deployment.(so effectively in an economy that dwarfs Australia or South Korea we are spending 25% on the entire nation versus what they are spending on 1 project. Par for the course) For now, it's unclear which communities would benefit from broadband expansion — and under what capacity (that about sums it up - just throw money out in every direction and let the lobbyists direct it...)
Speaking of which... third, this story in Wall Street Journal: Tech Giants Help Clients Tap Stimulus Plan
  • Gregg Stahl received an unusual offer last week from technology giant Cisco Systems Inc. Did he want a Cisco grant writer to help craft an application for federal stimulus funds that his state could use to buy digital-phone technology? Mr. Stahl, an administrator overseeing technology for the cash-strapped North Carolina Court System, recently had suspended a $9 million project to install a Cisco phone system. The state court system, which has a $25 million annual technology budget, has placed on hold all of its information technology projects, he said.
  • The project was halted after just a third of the work was completed. Mr. Stahl said he didn't see how the phone-replacement project would qualify for stimulus funds. But "companies like Cisco have a tendency to spend time with lobbyists" and might know better, he said.
Yes... yes... lobbyists know exactly how to best spend the taxpayers money.
  • The stimulus legislation doesn't provide checks directly to tech companies. Instead, it will parcel money out to needy health-care providers, school districts, governments and rural phone companies, among others. It is too soon to tell whether providing a grant-writer will produce a bonanza for any institution, but that hasn't stopped Cisco, Microsoft Corp., or Oracle Corp. from offering advice that could help customers land stimulus grants.
  • Over the last four weeks, Microsoft has trained its U.S. education sales staff to help customers identify eligible stimulus funds and apply for them
  • Oracle, of Redwood Shores, Calif., this month will hold an event for customers offering advice on how to tap stimulus funds
  • Companies including Cisco say the potential for boosting their sales is there. "This is an enormous package," said Jeff Campbell, senior director of technology and trade policy for the San Jose, Calif., company. "As the spring wears on there's going to be a lot of pressure to start spending the stimulus money."
  • "Stimulus has become part of the lingua franca," said Doug Eberhard, a senior director at Autodesk.
So effectively instead of handing money directly to these companies, we at least create a mirage of using a middleman. And the tech companies can help "write the proposal" and away we go - the "free market" at its best.

I'll have more specifically on the networking group in a separate piece.

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