On the back of the wireless spectrum auction results, I just wanted to share some ideas I had penned, oh about 2 months ago about how to make sense of the rapid changes going on in the wireless industry. More specifically, what I believe is happening is the evolution from Internet and wireless as 2 separate entities to a more unified, Wireless Internet. We’re still just in the putting-the-infrastructure-pieces-together stage.

I think it’s best to describe the trends briefly and then see who stands to benefits from such trends:

The opening of networks
As wireless networks begin to open up (this will take time before it really happens), the carriers should stand to benefit from the ability to monetize their networks via new revenues from non-subscribers. Much like the interconnect fees, the consumer will end up paying more in the short-run and all the open networks will win in 2 ways: you’ll have to open up to compete , monetizing cross network traffic

Apple (Nasdaq:AAPL) right now has made a commitment to only one network in the US. The device is so compelling that it may not matter but if the device ever loses some of its luster, Apple may need to think about making its device work on other networks.

Qualcom (Nasdaq: QCOM) loses. As networks open up, it will be hard for Qualcom to continue to collect its royalties on its closed-technology. Competitive pressures at both the device level and the network level will push Qualcom to find other revenue streams.

Google (Nasdaq: GOOG) wins. I never believed Google was bidding to win wireless spectrum. Instead of owning spectrum, Google has already won by pushing/lobbying the opening of competitive networks. Android and the Open Handset Alliance will allow Google to run the advertising OS of the mobile industry, just like it has become the Web’s Advertising OS.

Sprint seeking a strategy and what’s really happening in WiMAX
I see Sprint’s reworking of its WiMAX strategy as less a call on WiMAX and more specific to the Sprint situation. Sprint has internal issues it needs to shore up before it can think about any new audacious network rollouts. The fact that Ceragon (Nasdaq: CRNT) and Alvarion (Nasdaq: ALVR) are just continuing to knock the ball out of the park in terms of new WiMAX deals won (Alvarion has over 220 plus 40 in mobile WiMAX) shows that the for the rest of the world, WiMAX isn’t going to happen, it’s already started to happen. When WiMAX reaches critical mass, companies like Alvarion are in on the ground floor.

Retail sales move away from Big Box retailers as products unbundled
If the hardware ever is truly unbundled from network service contracts, then I think everything points to retail sales immediately taking to the Internet. Contracts and bundles are so complicated that you need local stores and the Big-Box operators to man sales forces to sell these. Once you can purchase a phone and a network contract separately, look to Amazon to become a major force in wireless sales.

I don’t think Retail sales go away entirely, but you’ll see a chink in the armor once direct sales become more feasible. Ebay and comparison shopping sites should begin to take over this field as they have in other fields where the products are more straight-forward and more commoditized.

Personalization
We’ve seen just the early innings of the personalization movement on the mobile device. Ringtones have become a $6 billion/yr business. The next stage here is video usage (less than 20% of US mobile subs use video on their handset). Private companies like Vringo and public companies like EA, which bought Jamdat (one of the early casual gaming firms focused on the mobile) should benefit. As more value-added services roll-out, companies like Comverse Technologies (OTC: CMVT.PK) (estimated to have almost 50% of world market share in voice mail services) and Amdocs (NYSE: DOX) will play a big role at the carrier level for running the content/technology/billing environments. If services don’t go the carrier route and instead work at the handset level, we’ll see tons of startups in this area.

I think iTunes will play a big role in delivering music to the phone and other products will follow suit, though not nearly as successfully.

Music firms, like Universal, who get it (albeit just a little) will begin to see opportunities for distribution online beyond just selling buckets of ringtones. Companies like Jupitermedia (Nasdaq: JUPM) are assembling large royalty-free libraries of music and this may begin to get interesting.

Hardware
I’m not that knowledgable on the equipment side but I do think Synaptics (Nasdaq: SYNA) will continue to see design wins as the device takes more center stage in the future as we get closer and closer to a true computing+mobile device. Input devices, as clearly demonstrated in the iPhone UI, are getting more creative and more useful.

Disclosure: Author’s fund has positions in ALVR, DOX, and CMVT as of 3/24/08.

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Merrill Lynch published a research report yesterday on Marvell Technology Group (Nasdaq: MRVL) as part of a “What the heck do investors do in 2008″ piece.

In a relatively bold move, Merrill gets contrarian on this call as sentiment on Marvell has soured since they reported earnings last week. Merrill thinks that 2008 is a pivotal year and investors need to tread carefully as they choose which subsector of technology to plow their money into.

The bank recommends buying Marvell with a $20 price target based on “solid topline growth, gross margin expansion, and better opex discipline.”

We wrote recently about cost cutting measures the company was taking in the wake of disappointing, though not disastrous, earnings.

Israel Opportunity Investor editor, Aaron Katsman, believes that this may be a good time for an entry into the stock as well. He wrote recently, “Keep in mind the relationship with Apple(AAPL). Marvell is currently supplying the WiFi chip in the iPhone, and many analysts are predicting that it will grow the Apple relationship, especially for the next-generation video iPod player.”

It’s definitely a stock with hair on it.  But after taking a recent haircut, it may be an interesting, albeit drawn-out, play.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

Disclosure: Author’s fund has a position in MRVL. He holds no position in any other stock mentioned, as of 12/04/07.

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Zack Miller is the Managing Editor of the Israel Opportunity Investor newsletter and a former equity analyst for a leading multinational hedge fund. For more information, go to www.israelnewsletter.com, call 1-888-327-6179, or email zack@israelnewsletter.com

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Aaron Katsman
www.IsraelNewsletter.com

With today’s news that Marvell Technology(MRVL)  is planning to fire 100 Israeli workers, as part of a global cost-cutting plan, it appears that this hi tech firm is going to be the Grinch that steals Hanukkah.

Marvell designs chips used in hard-disk drives, mobile phones, Wi-Fi functional electronics and Internet networking gear. The company has been embroiled in its own options backdating scandal, and has been focused on getting its financial house in order.

Marvellposted a loss of $6.4 million, or a penny a share, on revenue of $758.2 million for the third quarter ended Oct. 27. During the same period a year ago, the chip-maker earned $6 million, or a penny a share, on revenue of $520.4 million.

Notable Calls has an interesting analysis of where they think the stock is going. I think that at these levels, $15 a share, the share makes for an interesting contrarian investment. Marvell is taking steps to improve their margins, and along with the cost-cutting, they appear to be in the process of getting their ship in order. No question it has taken more time the many investors would have hoped for but, while these numbers weren’t of the blowout variety, they weren’t terrible. Keep in mind the relationship with Apple(AAPL). Marvell is currently supplying the Wi-Fi- chip in the iPhone, and many analysts are predicting that it will grow the Apple relationship, especially for the next-generation video iPod player.

This may make for a great turnaround.

Please see our Disclaimer HERE.

Disclosure: Author has a position in MRVL. He holds no position in any other stock mentioned, as of 11/28/07.

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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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Zack Miller
IsraelNewsletter.com

Well, Google’s (GOOG) April announcement that it would be adding a hosted version of presentation software as part of Google Docs — Google’s nascent stab at a full productivity suite– via an acquisition of Tonic Systems has been realized today with the search provider’s official announcement of Presentation as part of its hosted office solution. Presentation joins Google Docs Word Processing application, Docs (creative name, no?), and Spreadsheet application, Spreadsheet (even more creative).

What this means is that Google now has the equivalent functionality of Microsoft’s (MSFT) Office Suite to compete head-on versus Microsoft Word, Excel, and Powerpoint.

[youtube=http://www.youtube.com/watch?v=eRqUE6IHTEA]

Adding to the excitement, without much fanfare in the press (hey, it’s Apple — a company known to plan entire days around Steve Jobs’ choice of lunch), Apple had a seminal announcement last month as it introduced a speadsheet application, Numbers (a bit more creative!) to round-out its own productivity software in iWork ‘08. Apple now offers Pages, its word processing software with Apple flare, Keynote (hands-down, a Powerpoint killer — hey, I’m biased), and now Numbers, Apple’s spreadsheet offering.

I’m not going to use this space to compare functionality, mano a mano, of the three office suites. There are numerous analysts (See Carl Howe in particular) who do excellent work in this space. Instead, I’d like to think (write?) out loud about how these products stack up against one another in light of their parent companies’ strategic objectives. While these companies will compete head-on with their new product suites, as we’ll explore in this article, each company has its own, very different reasons for producing a kick-butt office suite.

Microsoft

The Office Environment for Office: In spite of talk of its demise, Microsoft hasn’t been dismissed yet. While the open source movement continues to make inroads on the server side with Unix-inspired systems, Microsoft’s dominance of the OS and Office Suite on the desktop of corporate computers worldwide is still extremely entrenched.

Because Microsoft continues to control the heart of the office (see image at left), Microsoft continues to run a healthy business off of providing solutions, services, servers and programs to the global business community.

Lock In — from the office homeward: For MSFT, controlling the office means that for me to communicate as a business person, I need to buy Microsoft products (or at least products that can be translated to work with MSFT products) This has historically enabled MSFT to own my computer’s OS and office suite at home. For to communicate with my work life, I need parity of products and platform. This leverage into the home computer via the office environment, is why it’s so important for MSFT to maintain its Office Suite dominance.

What’s happening to MSFT after years of failed attempts for competitors to take on Office within the corporate office, Microsoft now faces competition from the backdoor: home users. As Apple, Google, Open Office and whatever begin to garner a following at home, this momentum, if it reaches critical mass in terms of demand and functionality and support in terms of supply, may begin to chip away at MSFT’s dominance in the office. If MSFT’s dominance in the office is challenged, their dominance at home is equally at peril.

Strategy to Compete: I know there is a lot of rhetoric coming from Redmond on their strategy, but I’m hard pressed to see a cohesive strategy to compete with Apple and Google. Microsoft Live is not living up to its hype and spending time and money on game consoles and failed consumer devices shouldn’t be MSFT’s strategy. Nor should be competing for search. Google is using search to take over the desktop and ultimately, trojan horse into the corporate environment — MSFT needs to understand this.

Google

Capturing web search to own the Web Operating System: I know the stats say otherwise, but do you really use any other search engine other than Google. Really?? Google owns my web experience by organizing my web life and by using apps/products/services to get me to commit more info into the system, Google creates a lot of reliance. I’m still using Gmail at work and to communicate with clients. I’ve got Google Desktop running on my office machine. Google’s new productivity suite aims at Microsoft’s jugular and it’s Google’s foothold into challenging MSFT.

From my home into the office: I’m addicted to Google products at home. I NEED THEM. When I get to work, that dependence doesn’t go away. Now that Google has an offering in the Office space, a product that actually has some advantages over other products of its type, I’m apt to begin introducing my colleagues to Google (I’m thinking Aaron “Instant Rebate” Katsman may write even more compelling analysis on Israeli stocks in a Google Doc).

I love Google Docs for two reasons:

1. Storage: I love that these docs are accessible from whatever machine I use. I log in via my phone, my home laptop, and my office box and I never have to worry about versioning. I manage one doc in one place.
2. Collaboration: I know MSFT has had collaborative tools for years. But guess what? I never used them — nor would I know how to. With Google Docs, I invite my colleagues (read, Aaron Katsman) into a document that’s hosted by Google and updates in real time. We can edit each others’ articles and even chat in real time on the document itself. What about biz dev and legal stuff with contracts? I don’t know about your firm but I’ve been part of negotiations where the red-lining probably went back and forth over 50 times — all saved under different file names. That’s too much to manage for me (maybe for anyone, other than lawyers).

As I think about how I’m decreasing my dependence on Microsoft products, I realize that Google has added an incredible feature as well. Certainly, Google Docs allows me to save documentation into standard formats that my non-Google-ized colleagues can use. But there’s more. In fact, Google provides the ability to upload your MSFT Office-created documents to Google Docs, convert it into Google format, and continue to work with the application vis-a-vis Google Docs. This is big and important.

Jumping the shark: Given its competitive technology, collaborative features and an ever-growing reliance on Google products, I believe that Google Docs will provide a slow movement away from MSFT Office in the office. In fact, Google is basically saying, “We’re coming to your crib to party!” with last week’s announcement that Cap Gemini will support enterprise versions of Google Docs in Europe. Google will need to continue developing functionality and integrating Docs into your core Google experience. Apple will need to follow suit on the support side and learn from Google’s prescient move to attract the business user.

Apple

Using consumer devices to own my desk: Apple is on-fire with all its new product introductions. In fact, I think the velocity is a bit much, BUT, I’m listening to a lot of music that I’ve bought via iTunes on my iPod that I’ve upgraded 3 times. Apple’s also done a good job convincing me to add phone functionality to this experience. It all works very well with my MacBook Pro. Apple’s Halo Effect, introducing consumers to Apple consumer electronic products and eventually funneling these to increased Mac sales, has been, until recently, about owning the home computing experience. We’ve seen the numbers attest to Mac notebook growth in market share (according to NPD, Apple’s U.S. retail notebook market share for June 2007 was 17.6%, a gain of 2.2% over 2006).

Filling the business void with an office suite: What business could afford to migrate to a Mac environment given the fact that while things might run more smoothly internally (I’d postulate — though I can’t prove it — that although Apple products retail at a higher price point, total cost of ownership is lower for Apple products), they can’t interface with the rest of the world because of Microsoft’s dominance. No longer — Apple now provides the functionality to compete for the business customer. Apple’s next move will have to be global training and mobilization of third-party support to attract, service, and retain the fledgling business customer.

What does this all mean for investors?

Of these three players, I think Google is best situated for success. What Google, Salesforce.com, et al. have shown is that there is going to be a huge market for SaaS (Software as a Service). In fact, Web Search is really just SaaS 1.0. Instead of buying yellow page CD-ROMs (remember doing that?!), I just count on Google to provide great, FRESH results — all the time. I just type. I think the hardware becomes less important (not more important as AAPL is betting on) and it’s going to be all about the integration of web apps with my desktop and allowing the heavy processing to occur server side. Lastly, Apple and MSFT are going to ultimately butt-heads in a way that Apple doesn’t really know how to compete. To get to the business customer, Apple will need to open up by partnering in the service experience — something they didn’t quite get and the same thing that almost sunk them a decade ago. And for Microsoft, I think they’ve really reached the point of becoming a “Technology Utility”.

Disclosure: Author’s fund does not have a position in any of the stocks mentioned here as of 9/18/07. Author owns GOOG personally.

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Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC. and a former equity analyst for a leading multinational hedge fund. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email zack@profile-financial.com

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