AUSTIN ECONOMY

What does 2017 hold for the Austin tech sector?

Posted January 4th, 2017

There’s no question that 2016 was a busy, hectic year for Austin’s technology sector. The area’s largest tech company, Dell Technologies, completed the largest IT deal in history with its $58 billion takeover of EMC Corp.  Another big deal shook up the area’s semiconductor industry. And high-tech was at the forefront of this year’s South by Southwest festival, which included a visit from President Barack Obama. 

On the heels of such a high-energy year, how will 2017 shake out for the Central Texas technology sector? 

The 512tech team asked some experts. Here’s what they predict for the coming year.

Will 2017 be a quieter year for Dell, chipmakers?

Analysts said 2017 should be a quieter year for Round Rock-based Dell Technologies as the company digests the effects of the merger with data storage company EMC Corp.

“From Dell, we can expect steady as she goes in 2017,” said industry analyst Roger Kay. He said now that Dell is able to better target large corporate and government customers, they can “give IBM a run for its money.” He and other analysts noted that Dell will likely consolidate some of the EMC and Dell product lines.

“We might see certain product lines merge or go away,” said Patrick Moorhead, an industry analyst with Moor Insights and Strategy. “We’ll also see continued churn in the executive ranks.”

Analysts said they didn’t expect any major layoffs to hit Dell this year. “There was already a relatively major one (last year),” Moorhead noted.

Another multi-billion acquisition is set to reshape Austin’s chipmaking industry this year as part of a wave of consolidations hitting the semiconductor industry. San Diego-based smartphone chipmaker Qualcomm is set to buy Netherlands-based NXP Semiconductors in a $38 billion deal. NXP employs about 5,000 people in Austin.

“The economics in semiconductors are getting more and more brutal all the time,” Kay said. “You have to be incredibly large to carry on development, and you have to carry on development to compete.”

What’s unknown is whether Qualcomm will want to keep NXP’s manufacturing facilities in Austin or sell that part of its operations. Qualcomm currently doesn’t manufacture its own chips.

Meanwhile, Advanced Micro Devices, which is based in California but has substantial operations in Central Texas, is poised to have a big year thanks to the release of a new processor architecture called “Zen.” The company will start releasing its new computer processors in the first quarter, and it has new graphics chips it will release this year.

“Right now, all of the Zen news is basically people projecting what will happen,” said industry analyst Nathan Brookwood. “So this coming year is when AMD says hey, it’s is real, you can touch it, you can buy it,” Brookwood said. “2017 should be a banner year for AMD.”

Kay says he thinks AMD is an acquisition target this year, though other analysts disagree, in part because the stock price more than tripled this year, making AMD more expensive.

“The company has been pretty vocal about wanting to remain independent,” Brookwood said. “It will be an interesting contest to see whether or not somebody can come along with a sufficiently rich offer to motivate AMD’s shareholders to become part of another company.”

—Lilly Rockwell

VC slowdown could chill startup activity

Venture capital investing cooled significantly nationwide in 2016, and Austin startups will likely continue to feel the chill well into 2017.

During the first three quarters of 2016, 74 Austin deals received $415.8 million in funding. That’s a 37 percent drop from the first three quarters of 2015, when 87 deals took in $650.8 million.

Venture capitalists have pulled back worldwide, rattled by market uncertainty, a lack of strong initial public offerings and an ongoing skepticism about high valuations for unproven companies.

They’re unlikely to jump back in any time soon, said Kirk Walden, an adjunct business professor at Texas State University and principal of Walden Consulting.

“The VCs are not constrained — they have plenty of money to invest,” Walden said. “They are choosing not to invest. They don’t like the valuations right now, and they are happy to wait it out.”

That means startups that have previously received funding could struggle to raise additional capital to sustain their growth. That would likely result in more Austin companies being acquired, Walden said.

“Even if you’re not burning through cash, even if you’ve been calm and judicious with your money, if you’re running on empty and you can’t raise more, then you’re an acquisition target,” he said.

But on the bright side, software design, one of Austin’s strengths, will continue to see investment dollars and growth, Walden predicts.

“I still see software being strong. Look at self-driving cars — that’s nothing but software. Take that and apply it to anything else of the landscape — medical software, biotech, it’s all going to be software driven. I look for more investment in software than we have historically seen. That plays to Austin’s strengths, and it’s great for us.”

Also in 2017, look for more out-of-state software companies to develop offices here to leverage the regioin’s software industry workforce. In 2016, Google, Facebook, Apple and other California-based tech giants continued to build out their Austin teams, while Oracle Corp., the world’s leading software company began work on a new corporate campus on 27 acres overlooking Lady Bird Lake.

“Austin has the skills these companies need, and a lower cost of living. And it’s easy for companies to convince people who aren’t in Austin to move here,” Walden said. “It’s an easy sell.”

--Lori Hawkins

Jay Janner/American-StatesmanThe Apple campus on West Parmer Lane in Austin on August 24, 2016. 

Area’s personal tech sector evolving

The story of personal tech in 2017 might be that we’re no longer in a purely Apple vs. Android world.

While smartphones have been driving tech the past few years, many Austin software developers are moving beyond these mobile platforms in anticipation of where our eyes, ears and dollars are going next.

That means taking virtual and augmented reality seriously in the wake of the success in 2016 of “Pokemon Go” and the release of several hardware products for VR enthusiasts including Facebook’s Oculus Rift, the HTC Vive and PlayStation VR. Austin has a growing group of businesses working in VR and AR; but will the technology go mainstream quickly enough to keep enough of these businesses afloat in 2017?

Amazon’s Echo voice-activated platform became so popular that its artificial intelligence bot Alexa became a tech celebrity. Now there’s a race to integrate Alexa into other technologies and to develop Skills (voice-activated apps) that work with Amazon’s products.

Chatbots — artificial intelligence agents that work through messaging platforms such as Twitter and Facebook Messenger — are an emerging industry in town through businesses such as Conversable and Message.io.

Platforms matter and the ecosystems of personal tech will continue to be affected by which ones customers choose to work and play in: will Apple rebound from a controversial year of iffy design decisions? Will Internet of Things products, which have struggled, be buoyed by the success of products such as the Echo as apps and hardware make way for voice commands and more ambient technology? Or is that ecosystem due for a crash, as the market for wearables appears to be headed? 2017 should reveal a lot about which direction tech will continue to integrate in our lives and separate fads from the future.

—Omar L. Gallaga

Comments