Technology Leaders and Laggards

Technology Leaders and Laggards

Plus Five Key Themes to Help Tell the Difference

The technology sector includes several industries, such as semiconductors and semiconductor capital equipment, software and services, and technology hardware and equipment.

Technology may be the most dynamic of economic sectors. Upstarts become powerhouses seemingly overnight, but then the "new" leaders can miss an important trend, and their fortunes and stock prices quickly reverse.

Saturna Capital places heavy emphasis on technology. As of January 31, the Amana Growth Fund, the largest fund Saturna manages, had roughly 29% of its nearly $2.0 billion in assets invested in technology companies, both US and foreign.

Back in 1989, when Saturna was founded, the technology darlings of the era embraced the client/server model, which had taken the baton from host-centric, time-shared computing. The leaders were Intel, Microsoft, Cisco Systems, and others who supported the personal computer (PC) revolution, either by providing the guts for the box — such as Intel with its microprocessors and Microsoft with its operating system and applications — or by helping them connect to user networks.

Companies that went from leaders to laggards as host-based computing gave way to the client/server model, Digital Equipment and Wang Laboratories among them, indulged at the mini- and microcomputer party too long. Digital Equipment's Chief Executive Ken Olson proclaimed in 1977, "There is no reason for an individual to have a computer in his home." Enders Analysis, a communications technology research firm, estimates that the world's installed base of PCs is now over 1.6 billion.¹ (An interesting side note about Olson's claim: He meant it in the context of computers controlling aspects of people's homes, like lights and faucets, a trend making a resurgence via mobile devices.)

Of course, the 21st century ushered in other technology themes. The internet and mobility moved front and center.

Post the internet bubble of the early 2000s, PC-oriented companies started to fade. In 1995, Microsoft's then Chief Executive Bill Gates sent a memorandum (via e-mail, of course) to his troops, warning them to brace for "the internet tidal wave." He wrote further that the internet was "crucial to every part of our business," and that it was "the most important single development to come along since the IBM PC was introduced in 1981." Microsoft's client/server model had eaten the lunch of IBM's host-centric plan in the 1980s, but soon after, the hunter became the prey in the internet world, and Microsoft floundered for some time.

Companies such as Motorola, Nokia, and Research in Motion (Blackberry) ruled mobile from the 1980s into the 2000s. However, they were trumped in 2007 by Apple's iPhone. Since then, Samsung handsets powered by Google's Android operating system have gained share, particularly in emerging markets, where the number of cellular users is growing fastest.

For every feel-good and Google success, there were scores of failures. Do you remember Webvan or Amazon and Google have flourished only because they have re-created themselves several times.

Such is the source of technology's dynamism: ever-changing consumer behavior and the resulting need to adapt at the drop of a hat.

At Saturna, we see five key technology themes. These aren't necessarily brilliant insights, but if your favorite technology firm hasn't embraced these, then it may be too late.

The "cloud" has eclipsed other computing models

Here's an example of cloud computing: A growing technology company adds hundreds of employees, but instead of installing a suite of software on each desktop, only a single application is added. This application — it's cooler to call it an "app" — allows workers to log into a web-based service that hosts all the programs that they may need to do their jobs. These remote servers may be real or virtual, and they are often hosted at another company's data center. It's easy to see how this computing method is more efficient and less costly.

Microsoft — yes, the company that once defined old-school client/server computing — has been reincarnated as a cloud-computing beneficiary. Sales for its Windows Azure service, the company's cloud offering, topped $1 billion per year and are growing fast.²

The Internet of everything

At the annual Consumer Electronics Show in Las Vegas this January, Cisco Systems' Chief Executive John Chambers estimated that the economic impact of connecting everything to the internet, no matter how mundane, would be $14 trillion. Chambers, who has presided over the company since 1995, when it was focused on selling the routers and switches that provided the plumbing for client/server networks, clearly meant his forecast to shock and awe. It does, even if it's significantly overestimated.

This isn't your father's technology market. We must be aware of and try to capture technology's deeper dive into consumer and enterprise products that are becoming more "tech savvy." An example from the automobile industry: Karl Benz introduced the Benz Patent-Motorwagen in 1886. Today's Mercedes-Benz S-Class has 38 semiconductors from chip-maker Microchip Technology.³ One hundred twenty-eight years later, Mercedes-Benz has embraced the Internet of Everything.

Keep your hands off of my stack

Perhaps the biggest news over the recent holiday season was the revelation that an estimated 110 million people, or a whopping 35% of the US population, may have had their identities stolen by computer hackers that infiltrated Target's payment system. No surprise then that cyber security is our third technology theme. We seek to invest in companies that provide it and are wary of any firms that may be susceptible to attack.

The Internet in your pocket

Mobile continues to be a technology catalyst. The growth of high-end smartphones in developed markets and low-end feature phones in emerging markets has been explosive. Apple and Google have captured more than their fair share of this growth – Apple through its iPhones and iPads and Google through its Android operating system. According to International Data Corporation, Android powered 81.0% of the 261.1 million phones shipped worldwide in the third quarter of 2013.4

Everything's bigger with Big Data

Number crunchers traditionally worked in rows and columns of spreadsheets, but business decision-makers now try to capture, track, and analyze unstructured information like video and text. Oracle and SAP have been the relational database kings, but how will they fare given that there are more, new competitors seeking to assist with unstructured data?

Technology has proven to be an important way to enhance business productivity, although there's some evidence that the rate of improvement has slowed from its blistering pace of a few years ago.

As for consumers, technology continues to proliferate, much to the chagrin of some parents.

Technology has had an unquestioned impact, increasing market swings to the delight and disappointment of investors at various times. We should all get used to the volatility that technological disruptions have brought and will continue to bring.

Saturna Managed Fund Ownership of Securities Mentioned

(As of January 31, 2014)

Security Mentioned

Amana Growth

Amana Income

Sextant Growth

Sextant International

Sextant Global High Income





Cisco Systems












Microchip Technology











Research In Motion






Ownership levels presented are expressed as a percentage of a fund's total net assets. The Amana Developing World, Idaho Tax-Exempt, and Sextant Bond Income did not own any of the securities mentioned in this article. The Sextant Core Fund and Sextant Short-Term Bond Fund owned Oracle bonds at 1.56% and 4.02%, respectively, of their portfolios.

Digital Equipment,, Wang Laboratories, and Webvan are no longer publicly traded securities.


¹ Evans, Benedict. [BenedictEvans]. (2013, December 10). The number of smartphones in use on earth will probably pass the number of PCs in the first half of 2014. [Tweet].

² Kerr, Dara. "Microsoft's Azure get competitive with $1B in revenue." CNET News. April 29, 2013.$1b-in-revenue/

³ Bjornholt, Eric, Vice President and Chief Financial Officer, Microchip Technology. Presentation: Stephens 2013 Spring Investment Conference, June 4-5, 2013.

4 IDC Corp Press Release. "Android Pushes Past 80% Market Share While Windows Phone Shipments Leap 156.0% Year Over Year in the Third Quarter, According to IDC." November 12, 2013.

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