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Goodbye PC, hello smartphone

February 22, 2010 by Steven R. Gerbsman

Here is a good commentary from San Jose Mercury News around Microsoft´s new mobile launch.

“The era of the PC’s dominance is officially over. We have crossed over into the age of mobile computing.

This transition has been building momentum for a while. Some might argue that the iPhone was the dawn of this era. Others might say it was really the rise of the BlackBerry. Or maybe even Android, Google’s mobile operating system. Good cases could be made that any one of these marked the start of the mobile era.

But Microsoft’s announcement of its new mobile-phone platform this week signals a clear end to the old PC era and an epic shift in computing.

But why Microsoft? The reason has little to do with the details of Windows Phone Series 7 that the company unveiled at the Mobile World Congress in Barcelona, Spain, on Monday.

I haven’t touched it, and it won’t be available to consumers for months.

This isn’t about specific features or its design, or whether it will help Microsoft regain lost momentum in the mobile market. Rather, what struck me is how Microsoft did this.

For years, the company took its Windows operating system and created a miniature version for smartphones. While initially good enough for many users, this was the approach of a titan aimed at protecting its turf, rather than a nimble tech firm trying to innovate. It was safe, which is often the enemy of creativity.

Along the way, Windows Mobile was surpassed by the iPhone, Android and Palm’s webOS in terms of elegance and features.

Rapidly losing market share in this critical space to those competitors, Microsoft eventually decided it was time to reboot. For the new version, Microsoft scrapped the Windows-based version completely. The need to think mobile first was so critical, the company was willing to risk undermining its biggest franchise, Windows, which brings in billions of dollars a year.

Rather than let that fear of change paralyze it, Microsoft built the new operating system for smartphones from the ground up. And it did it for the right reason:

“The phone is not a PC,” said Joe Belfiore, Microsoft’s corporate vice president of Windows phone program management as he demonstrated the new platform.

“Well, duh,” you say. That sounds obvious. It’s not.

The success of the Windows operating system bred complacency. The temptation is to make sure everything you do reinforces the cash cow.

To cast that aside, to start over, is a fearless move.

I chatted Tuesday with Karen Wong-Duncan, a manager in Microsoft’s mobile communications systems, who said the rapid change and adoption in the smartphone market required more than just incremental changes. This time around, Microsoft was trying to think big.”

Read the full article here.

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Microsoft, Yahoo deal gets regulators’ OK

February 19, 2010 by Steven R. Gerbsman

Here is an interresting article from SF Chronicle.

“Regulators have cleared the way for the landmark search partnership between Microsoft Corp. and Yahoo Inc., creating a unified front in the battle to crack the dominance of Google Inc.

Seven months after announcing the agreement and following several years of merger flirtations, the U.S. Department of Justice and European Commission approved a deal that tightly allies the No. 2 and No. 3 players in the search space. It also marks a pivotal moment in the history of Yahoo, as it cedes territory where it was once a pioneer.

Under the terms of the pact, Microsoft’s Bing search tool will become the exclusive platform on Yahoo’s sites, funneling queries through the Redmond, Wash., software titan’s increasingly popular algorithm. The Sunnyvale Web portal will sell advertising tied to online search for both companies, and Microsoft will pay Yahoo for the traffic it generates.

The deal promises to give the companies control over nearly 30 percent of U.S. online searches, based on the current market share reported by comScore Inc. The combination will deliver improved results for consumers and better returns for advertisers and publishers, the companies said.

“Together, Microsoft and Yahoo will promote more choice, better value and greater innovation,” Microsoft chief executive Steve Ballmer said in a statement.

But analysts are skeptical about how much the deal will really reshape the search industry. Google holds a commanding lead of more than 65 percent of searches, and Yahoo has been bleeding market share for years.

“I don’t think there’s a big shift in power here,” said Carl Howe, analyst with Yankee Group Research Inc.

Rather, he said the agreement provides incremental benefits, opening up a bigger channel of advertisers for Microsoft and lowering research and development costs for Yahoo.

Yahoo previously estimated the agreement would add $500 million to its annual operating income and save $200 million in capital expenditures, though not until two years after the deal was approved.

Implementation will begin in the coming days and could be complete in the United States by the end of the year. The goal is to transition U.S. advertisers and publishers to the new platform before the holiday season, but the companies acknowledged it may take until 2011.

“This breakthrough search alliance means Yahoo can focus even more on our own innovative search experience,” Yahoo CEO Carol Bartz said in a statement. “Yahoo gets to do what we do best: combine our science and technology with compelling content to build personally relevant online experiences for our users and customers.”

Read the whole article here.

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Software Vendors: Tech M&A Activity Poised for Rebound

February 18, 2010 by Steven R. Gerbsman

Here is some good news from CIO update.

“After what can only be described as a desolate merger and acquisition landscape throughout most of 2009, a new study conducted by PricewaterhouseCoopers predicts an upswing in both the volume and value of deals this year. And mergers and acquisitions in the high-tech sector will be leading the charge.

According to the US technology M&A insights 2010 study, total closed deals in 2009 fell 53 percent and were valued at just under $36 billion, way down from 2008 when companies completed purchases valued at $77 billion. However, a nice little surge in technology deals in the latter portion of 2009 appears to have given the market some momentum with 85 percent of the value of the $36 billion in mergers and acquisitions last year coming in the final six months.

“Driven by the surge of technology deals completed in the latter half of 2009, PwC expects deal activity to continue apace in 2010, albeit still below the levels seen in 2006-07,” the report said.

Anyone lamenting the moribund state of the technology M&A market can’t blame Oracle (NASDAQ: ORCL). The software giant continues to continues to make purchase after purchase in its ambitious quest to unseat SAP (NYSE: SAP) as the world’s largest business application maker and take on rivals IBM (NYSE: IBM), Microsoft (NASDAQ: MSFT) and HP (NYSE: HPQ) as it looks to become the world’s leading systems provider. Oracle has already made a pair of acquisitions early in 2010 after closing its blockbuster purchase of Sun Microsystems.

IBM also loosened its purse strings in effort to keep pace with Oracle and other cloud-computing providers. It’s a trend that PWC expect will continue throughout 2010. “There is much enthusiasm that the IPO market will make a big comeback in 2010,” the report’s authors wrote. “Add to this the potential return of private equity investors to the negotiating table and the result is improving exit multiples and more satisfied sellers.”

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Cleantech economics 101: Higher fossil fuel prices, more cleantech

February 16, 2010 by Steven R. Gerbsman

Here is a good article written by David Gold posted at The Cleantech Group.

“With all the complexities of cleantech policy and technologies, there is only one simple thing needed for an explosion of competitive clean technologies: an increase in the price of fossil fuels.

The amount of R&D that will need to be invested in clean technology in order for them to become competitive is much greater with low fossil fuel prices. And, the lower those prices, the less appetite the private sector has for making such investments.

This leaves a much-increased burden on the back of government through grants and subsidies—a back that is close to being broken from debt.

While clean technology development is absolutely necessary, technology development takes time and, often, a long time. And technology development is fraught with uncertainty…nobody ever knows a priori whether such efforts will be successful and how long they will take. Believe me… every venture fund in the world would love to be able to know that! But they don’t.

However, virtually every venture fund and researcher will acknowledge that significant advances usually take much more time and more money than expected.

In an environment of relatively low fossil fuel prices with high price volatility, grants and subsidies for an amount of time and at a level that will make any permanent and meaningful difference are simply unsustainable. So, for all the focus on “cleantech stimulus,” the most important thing that government can do is to affect change in the cost of fossil fuel alternatives.

If we had higher fossil fuel prices, or even just clearer visibility and certainty about future increases, the free market would make dramatic increases in investment in clean technology. When the free market sees an opportunity to make a profit, it moves extremely fast.

Government actions that put in motion increases in the cost of fossil fuel alternatives, even if those increases are phased in over many years, could have an enormous impact on the money invested by the private sector in alternatives (and a corresponding decrease in need for government subsidies and grants).

This, in turn, could further accelerate technology advances, leading to a more rapid convergence of the time when various technologies can competitively reach the mass market.

Given that fossil fuels are a finite resource, it is a fait accompli that eventually alternative energy and energy efficiency technologies will become so compelling that they will dominate the market. But the future of fossil fuel prices in the relatively near term (e.g., the next decade or two) is far from certain (article), as both general economic conditions and new discoveries such as those in Venezuela’s Orinoco Belt play a role.

If we didn’t care about global warming, national security or economic security, there would be little need to do anything but let the market take its course. But irrespective of personal policy hot buttons, most would agree that we do not have the luxury of the amount of time for this transition to take on its own.”

Read the full article here.

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“Cleantech, the next Bubble to Burst” – An Industry Update from Gerbsman Partners.

February 11, 2010 by Steven R. Gerbsman

In 2001 Gerbsman Partners predicted that the Internet would be a “Dot Bomb” and in 2005 forecasted that Wireless would be the “Next Dot Bomb”. Gerbsman Partners also forecasted the coming of a major “Black Swan and Tipping Point” event in May 2007. Now, in February, 2010, Gerbsman Partners is prognosticating, “Cleantech, the next Bubble to Burst”.

In any typical venture capital/private equity investment cycle, the investors re-evaluate their investments at the 2-3 year mark. Cleantech investments have either reached that milestone or or will be there at some point during 2010. It should be expected that most Cleantech investments that were formed 2-3 years ago require additional capital this year to maintain their viability.

Since the majority of Cleantech capital has been provided by government funding, mainly to major companies and based on Gerbsman Partners 30 year track record for maximizing enterprise value of venture capital backed Intellectual Property companies, we predict a high percentage of Cleantech companies will fail to obtain the necessary additional funding to survive. Specifically, in this challenging capital and economic environment, we expect a higher rate of Cleantech companies failing. Gerbsman Partners proprietary and proven “Date Certain M&A Process” presents a viable alternative for equity sponsors to maximize the enterprise value of their Cleantech portfolio companies.

While the Cleantech industry has enjoyed significant growth and increased funding over the last few years, there are warning signs that a significant drop off is on the horizon. Gerbsman Partners has identified the following warning signs and symptoms:

  • Total Venture Capital investment in Cleantech decreased to $5.6 billion in 2009, down from $8.4 billion 2008, and the lowest level since 2006.
  • Additionally, North America´s share of clean technology venture capital was down from 72% in 2008 to 59% in 2009, a four year low.
  • 2009 saw the lowest number of IPO´s in nearly a decade.

In addition to these industry-wide trends, there are some sector specifics:

Solar Power:

  • Solar panels, as well as other solar technology, experienced a steep price drop in 2009 and that trend is expected to continue. While that´s good news for consumers, suppliers now have too much manufacturing capacity and, thus, supply has vastly overtaken demand.
  • The rapid expansion and resulting over-supply caused a sharp rise in start-up failures in the 2nd half of 2009, along with several disastrous IPO´s.
  • While cost of production has dropped, issues with solar power storage methods continue to hamper the industry. Between 30 and 45% of all Photo Voltaic solar power is lost before it can be used, prompting some investors to look elsewhere for efficient renewable energy.

Biofuels:

  • While some advances in research were made within Biofuels in 2009, most forms of first-generation biofuels are uneconomical, even after substantial government funding.
  • Policy barriers continue to slow this sector´s growth. Government requirements and restrictions on biofuel research and development have increased every year for the last decade with no change in sight.
  • At the heart of the government´s policies lies the “food vs. fuel” debate (diverting farmland or crops for essential biofuel production space), posing strong opposition to continued innovation from lobbyists and special interest groups.

Wind Energy:

  • Wind turbine manufacturing dropped between 15-20% in 2009, compared to the prior year.
  • New project announcements were also down by 20% in 2009, with few domestic programs on the horizon. Without these new projects, a boom within the sector seems highly unlikely – especially when considering that wind constitutes less than 2% of the total US electricity supply when functioning at current total capacity.
  • Inadequate transmission capacity remains a significant barrier to further development, with nearly 300,000 MW of wind capacity held up in a pipeline bottleneck due to transmission limitations.

Geothermal Power:

  • Geothermal power is twice as expensive as Solar Power and three times as expensive as Wind Power. This discrepancy is mainly due to the comparative difficulty in cultivating Earth´s heat – deep drilling is expensive and no new, viable cultivation methods figure to make a splash anytime soon.
  • To be both usable and economical a drilling site must have hot magma near the surface, an adequate volume of relatively pure hot water or steam, a surface water source for cooling equipment, and close proximity to power transmission lines. So, even in promising areas, economically usable sites are few and they are difficult to locate.
  • Private investing in Geothermal Energy ranked 8th among Cleantech sectors in 2009 and hasn´t placed in the top five in the last decade.

Preservation of Enterprise Value

During the Internet/Technology meltdown and the recent financial crisis of 2008-09, Gerbsman Partners maximized enterprise value for under-performing, under-valued and under-capitalized VC technology, life science and medical device companies and their Intellectual Property through:

  • The stabilization, wind down/orderly shut down of 60 companies through the sale, M&A or joint venture of the company’s Intellectual Property.
  • The termination/restructuring of over $ 790 million of prohibitive real estate, equipment lease and/or sub-debt obligations.
  • Crisis Management services that minimized potential stakeholder exposure and insured that management, stakeholders and Board of Directors met their fiduciary obligations.

In January 2010, Gerbsman Partners again identified similar characteristics in the Cleantech arena.

Domain Expertise – Cleantech

Gerbsman Partners marketing, research and focus in the Cleantech sector includes organizing meetings and establishing relationships with leading Manufacturers, Service Providers, Developers and Equity Investors. As a result, Gerbsman Partners has significant Domain Expertise in the Cleantech area.

Besides describing the current status of the Solar Power, Smartgrid, Geothermal and other Cleantech markets, our research has uncovered a number of challenges in the Cleantech industry.

Examples Include:

  • The oversaturation of the Solar Panel and Energy Efficient Lighting markets, where previously thriving products became so cheap to produce that the resulting oversupply set off a chain of mergers and bankruptcies for companies manufacturing them (Former success stories OptiSolar and SunEdison chief among them).
  • The price of natural gas remains at an all-time low. Historically, when natural gas prices are low, investment and research within Cleantech plummet substantially, as was the case in ´09.
  • Cleantech relies heavily on government funding. The US Government provided $67 billion in stimulus money, loan guarantees and grant programs to renewable industry in 2009. While the funding helped with the lack of private money, there is no guarantee that the government´s aid is sustainable in the current economic environment.

Gerbsman Partners and its Board of Intellectual Capital are available, if appropriate, to strategize and develop action plans for maximizing value of challenging Intellectual Property based technology, life science, medical device and now Cleantech companies.

About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in under-performing, under-capitalized and under-valued companies and their Intellectual Property. In the past 60 months, Gerbsman Partners has been involved in maximizing value for 60 Technology and Life Science companies and their Intellectual Property and has restructured/terminated over $790 million of real estate executory contracts and equipment lease/sub-debt obligations. Since inception, Gerbsman Partners has been involved in over $2.3 billion of financings, restructurings and M&A transactions.

Gerbsman Partners has offices and strategic alliances in Boston, New York, Washington, DC, Alexandria, VA, San Francisco, Europe and Israel.

For more information, please contact Steven R. Gerbsman at: steve@gerbsmanpartners.com

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