Silicon Valley venture capitalist and private equity investor Roger McNamee gave a rare interview to CNBC recently. Never heard of him? Bet against him at your own risk. McNamee has been investing in tech for decades. He was an analyst at T. Rowe Price and went on to found Silver Lake Partners (which made a killing taking Seagate private and then public again) and later founded Elevation Partners. CNBC calls him "one of the most successful tech investors of his time." He also plays in a rock band and hangs out with Elevation co-founder Bono.
Nowadays, McNamee focuses on up-and-comers in the technology world -- companies that hope to go public in a few years. That gives him a fabulous view of technology trends. Notably, McNamee said he is more bullish on tech than he has been in years. Here are highlights from his interview, for those of us who don’t invest in private companies like Facebook -- or hang out with Bono.
The beginning of a new tech megacycle
Currently there is a clash between the browser model -- i.e., Google
He believes index search -- what many people refer to as "Googling" for information -- has peaked. It accounted for about 90% of Internet searches five years ago, but has fallen to less than 50% today. The winners? Wikipedia, Facebook, Twitter, and Yelp. McNamee noted he’s an investor and "big believer" in Facebook and Yelp. He sees four or five additional "really exciting" social networking companies, but no more.
He expects the adoption of HTML 5 to mark the beginning of a new megacycle in tech that wildly changes Internet content. McNamee thinks it will start slowly but last for more than 10 years.
The decline of Windows
Ten years ago, 97% of all web-connected devices ran Microsoft
Nonetheless, he expects Microsoft to be fine thanks to its "monopoly" in email. He is less enthusiastic about Wintel-centric players, predicting that the decline of Windows will be "brutal" for Dell
Tablets, smartphones, and the Wild West
McNamee’s clear enthusiasm for tablets didn’t spill over to Google’s Android operating system, stating it was too "Wild West" for him. He dislikes Android’s lack of protection against viruses and other malicious activity, noting that Google removed 64 Android apps from its Apps Marketplace because the apps were doing things like stealing users’ credit card numbers.
McNamee was surprisingly positive on the webOS smartphones and tablets Hewlett-Packard
With all due respect to Gartner analysts, I’d rather invest with Roger McNamee.
He stopped short of market share predictions for Apple’s iPad tablet. Instead, he asked "what if" Apple keeps 60% to 70% share of the tablet market, as it has done with the iPod? Good question. Gartner is predicting 47% share in 2015 for the iPad.
Supply concerns overblown
Asked about potential supply disruptions related to the earthquake and tsunami in Japan, McNamee noted that most electronics manufacturing takes place elsewhere, so it is more of a challenge for the auto industry than the electronics industry. He didn’t view it as a material concern except potentially for the iPad, due to strong iPad demand.
So what’s an investor to buy and sell? McNamee didn’t directly discuss valuation, but he wouldn’t be as successful as he is if that wasn’t always at the back of his mind. He described Apple and Microsoft as buys. While saying Google is "OK," he also suggested going long Apple and short Google as a pair trade.
Based on his comments, I’d avoid Dell and Intel, as well as Android bets such as Motorola Mobility
His negative view on Wintel didn’t directly spill over to HP, which he called very credible and very, very strong in consumer electronics. That could be because PCs account for only 32% of HP’s revenue and an even smaller share of its profits and/or because HP’s tablet foray could offset expected pressure on its PC business. It sounded like McNamee might hold HP.
Agree or disagree with McNamee? Make sure to leave a comment below on where you feel technology is headed. In the mean time, to stay updated on any of the major players above, add them to our free watchlist feature: