Even as economic conditions worldwide appear to be improving at the macro level, there are renewed pressures on the Eurozone sovereign debt issue, and concerns that managing a global shift from stimulus to the control of debt and inflation will be challenging. Bond ratings for Ireland sunk and there may be further revisions in bond ratings for Greece, and even for Spain and Portugal. Some financial experts think that the “edge countries” in the EU will all require support as sluggish economic growth and relatively expensive social programs create a gap that only borrowing and austerity can fill.
One proposal now gaining strength is the issuing of a Eurozone bond that would be used to fund a large rescue fund, essentially transferring the faith and credit of all the major (and more successful) EU economies to the debt of the weaker members. This won’t mean that austerity programs won’t kick in where the funds are transferred, though, and as a result the measure will trade the tension of disparate debt ratings for a new tension in disparate quality of life, something labor in the impacted countries is already protesting. But a debt crisis would produce a lifestyle crisis too, so the choice is the latter alone, or both.
In the US, we had a rare show of partisan cooperation with the passage of the tax bill, a bill that includes a Social Security payroll tax reduction of 2% for next year that is a form of stimulus and also an extension of unemployment benefits. The general view is that this will keep the US economy on track in 2011, and that’s what our model says. It probably adds about 0.2% to GDP growth for next year, and may reduce unemployment by a half-percent according to our own numbers.
Another significant event in Congress is the fact that the behemoth spending bill that was prepared to fund the government has been pulled in favor of interim funding because it cannot be passed over Republican opposition. The problem here, at least on the surface, is that the bill contains billions for projects of questionable value, and likely millions in special earmarks that were a specific target of Tea Party activists who were elected to the next Congress. Some kind of reform of the bloated federal budget process may be forthcoming, which couldn’t hurt. It may also be a sign that Congress is going to work harder to be bi-partisan in 2011 and beyond.
Alcatel-Lucent may be looking to change video collaboration, announcing that Bell Labs and a Belgian research giant IBBT will collaborate on applications to “bring a new dimension to video communications”. The scope of the work appears to include both stuff likely useful in the near term (like video content analysis and management of each user’s view of a conference relationship) to things like immersive panoramic experiences, ultra-high-def, and even 3D that we think may be simply going too far to be relevant to people who don’t want to be on camera when they’re feeling ugly. Our research has long shown that a better and more socially linked collaborative dynamic would be highly valuable, and in fact might kick off a wave of productivity-based IT investment that would restart an industry stalled in underperformance relative to its glorious past. The question is whether the research process will deal with the real and current market issues; the future of 3D telepresence is still a bit off, I think.
Oracle is clearly not off at all. Their revenues were up 47% in large part on strong sales of Sun hardware. Pipeline deals for the Exadata servers were about $2 billion. Clearly Oracle is a Big Player now, and clearly they’re a special threat to HP, at whom Ellison took a shot during their call. HP’s weakness is software in our view, which is Oracle’s strength, and there is a very good reason to believe that the special strength of Oracle in middleware is the secret sauce for the company’s diet of competitors in the data center. IBM matches Oracle’s credentials here, but the company poses a threat to everyone else’s data center plans, including Cisco’s. The Cisco comment raises the key point, one I’ve been raising with respect to Oracle for a year now. What will they do in networking? If they want to be a full-scale data center player, they need a network strategy.