A Pleasantly Shocking Team-Up

 | May 30, 2014 | 11:44 AM EDT
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Old tech vs. new tech? Which will win out in this titanic struggle as we head into the final month of a new quarter?

Many individuals who are new to the market may not understand that portfolio managers look at huge­ technology through a bifurcated prism. On the one hand, there are the companies they grew up with -- Intel (INTC), Microsoft (MSFT), Micron (MU), Oracle (ORCL), Seagate (STX), Western Digital (WDC), Texas Instruments (TXN) and Hewlett-Packard (HPQ), IBM (IBM) and, of course, Apple (AAPL).

Then there are all of the companies that have sprung up in what some consider Internet 2.0, but which I believe just represent new-wave technology -- companies that recognize that the future lies in your handheld and all that can be accomplished on it. Many of these companies go by the rubric of software-as-a-service, and among these are such names as Concur Technologies (CNQR), Workday (WDAY) and Salesforce.com (CRM). Others are e-commerce-enabled companies such as Yelp (YELP) or Zillow (Z). Still others, like Tableau (DATA) and Splunk (SPLK), analyze big data.

Right now, at this very moment, the big hedge funds, after taking a bath on the shares of the latter companies, are keying in on old tech as the place to be.

I think that, after a precipitous fall in many new-tech companies' shares, there's been a terrific bounce that the opportunistic among you have been able to play. These stocks now seem extended to me. Meanwhile, old tech just keeps plodding along. While the stocks in that area have certainly been strong, they have strong fundamental underpinnings -- including big profits and, in many cases, outsized dividends and gigantic share buybacks.

Perhaps nowhere is this tug of war playing out more viscerally than in the shocking team-up announced Thursday night between Microsoft and Salesforce.com, which will see the integration of the latter company's platform with many of the strongest functions of Mr. Softee. I say this one's shocking because Marc Benioff, the terrific CEO of Salesforce.com, has often chided Microsoft as being the evil empire.

But the Microsoft that's run by Satya Nadella is a kinder, gentler and more cooperative Microsoft than the one that had been run by former CEO Steve Ballmer. It's not winner-take-all, loser-take-none, as it had been with Steve.

I think that Salesforce.com is the real winner in this cloud-based tie-up, because it can now get the most out of its buyout of Microsoft-based ExactTarget, a very fine customer-acquisition software company that Salesforce purchased almost one year ago. Anything that allows for easy porting among systems is more of a win for a smaller company than it is for a large one, although it's very clear that Microsoft just got a lot more cloudy -­- something Nadella emphasized as being incredibly important to Microsoft in his first earnings conference call. The cloud is distinctly 2.0.

Right now it looks as if the market's judgment is that new tech has indeed run too far. Salesforce.com shares, after rising last night, have given up that gain and then some. Microsoft, however, is powering higher on the back of the tie-up. I think this move says more about the soul of the tech-stock world than it does about the actual needle-moving gains that might accrue to Salesforce.

A lot of that could have more to do with the bizarre non-disappointment disappointment involving Splunk, a big-data analytics company. Splunk had a huge quarter, but it wasn't huge enough to keep the stock from sinking after its own bounce back. Splunk shows you that new tech is, in the end, far more vulnerable to old tech, and that's how you get such a hammering. It's why I favor the old over the new.

Speaking of the old, I don't think this Salesforce.com-Microsoft partnership could have ever been inked under Steve Ballmer's regime. Steve is a competitor writ large, and I believe he viewed Salesforce as an enemy that had to be vanquished if Microsoft was to prosper in the cloud.

On a different note, I always say that it's not about friends -- it's about money -- but some friendships, like the one I have with Steve, precede and transcend my mantra. That is why I am so thrilled that, after many years at Microsoft, Steve's buying the NBA Clippers from the Sterling family. Let's just say that's a nice step up in ethics from the disgraced former owner. I wish Steve the best of luck in his new life and, at the same time, I congratulate Satya for engaging in coopetition. It will be good both for Salesforce and for the now-Ballmer-less Microsoft.



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