Steve Forbes Interview: Mobile Technology Experts? ~ MAKE MONEY BLOG$

iPads,

Are Banks Obsolete?

Steve Forbes: Do you think the time is going to come with technology where the cloud gets bigger and bigger, where the individual can just do it all on his own — not going to need you guys anymore?

Fred Tomczyk (CEO, TD Ameritrade): I don’t know. I think they’ll always need a broker for regulatory purposes to execute it. I think the cloud is a technological term about how you process data and whatnot. And we use cloud computing in certain situations ourselves. But I think most investors realize they need to take their investments seriously. They need to have a plan, even if they’re going to trade. They’re not trading with necessarily all their money, but with a portion of their money.

Forbes: Handhelds, iPads, other kinds of pads — will we need banks anymore? Traditional, structured banks?

Tomczyk: It’s been a long running debate about whether you need bricks and mortar — everything was going to go online and to the web. We saw that with the advent of ATMs. We saw that with the phone. We saw that with the web. And you’re now seeing it again with mobile offerings.

And through all that, it’s never been one or the other. It’s all of the above. And we continue to see this trend where people do want to have a branch. Maybe not as much as they used to, but they still — if they have a problem — they want to know it’s there. Or they’ll go there to get certain advice and counseling and guidance.

But most times they’re going to interact with you through other channels. And that’s continuing. And the mobile offerings, we should make no mistake, this is going to continue. You look at people around, say, here in New York; you can’t walk down the street without somebody on a Blackberry or on an iPhone. The iPad was the most successful technology launch in history.

The iPad 2, you’re seeing it, is more popular than iPad 1. And so I don’t see this changing in any way, shape or form. We’re going to see an increased proliferation of available ways for people to interact with businesses. And you have to be there if you want to win for tomorrow.

Staying Ahead In Mobile Tech

Steve Forbes: In terms of staying ahead of the competition, because all the banks go online. Describe some of the new things you’re doing. Everyone understands mobile, but do you think you can do something different?

Arkadi Kuhlmann (Chairman & President, ING Direct USA):Yeah. Look, mobile — that’s the new real estate. We have 650,000 customers already that are running pure mobile. So those little icons, those little apps, are really the corner of the future, if you will, the corner store of the future.

We have Bump, of course, which is one of the new kind of methodologies that keep leapfrogging. It used to go from online and then it got into e-mailing money, right? And then it’s p-to-p. Now we basically log on an app, I put in the money that I owe you, we knock the devices together and the money transfers to you. And then it gets cleared in the background.

Forbes: What’s that going to do to Pay Pal?

Kuhlmann: Well, it’s going to give them a bit of heartburn, but you know, that’s what innovation’s all about, right? I like the idea of leapfrogging. I believe in American ingenuity is about doing it right here, and doing it in a faster, cleverer way. So, we don’t outsource, we don’t offshore anything.

We basically do it right here, and our job is to get rid of the paper. But I’ve got to convince you, as a consumer, that if I get rid of the paper it’s going actually save you money, not just save me money.

But it’s also going to be done the way that you actually find intuitively easy to do. So, now that people are doing boarding passes with their cell phones, and they’re booking restaurants, and they’re trying to find out whether their flight’s going to arrive, well, why can’t we be in the middle of that, and actually use that to help transfer money?

The Broadband Miracle

Steve Forbes: With all this pessimism around, at least give us one good thing that’s happened in the last ten years. You’ve talked about the broadband miracle, where we went from way behind to surging ahead.

George Gilder (Chairman, Gilder Technology Group): Well, we sure did. The irony about it is this broadband miracle that’s happened in the United States over the last five years or so was totally unanticipated by the people who wanted massive government programs to lay fiber to every remote farmhouse.

Instead we had a 553-fold increase in wireless bandwidth deployed over this period — completely unexpected — that thrust the U.S. into the world lead again in communications. It shows these upside surprises that are the essence of capital creativity. Creativity always comes as a surprise to us. If it didn’t, we wouldn’t need it and socialism would work. You could plan these great new technologies.

Forbes: As Bell once thought it could do.

Gilder: That 553-fold increase in wireless broadband, nobody imagined really. I mean, it startled me with its speed and overwhelming impact.

Forbes: Well, pat yourself on the back — you called them teleputers years ago. Now we call them smartphones, tablets, iPads. Explain it.

Gilder: I always said that your computer would not be a desktop machine; it would be as mobile as your watch, as personal as your wallet. It would recognize streets. It would recognize speech. It would navigate streets. It might not do windows, but it would do doors and it would, in general, open doors to your future. And these teleputers are really the force that is driving this massive global roll out of wireless bandwidth, which was pioneered in the United States.

Forbes: Now, before we get to all the things that stand in the way of reaching the true harvest of all of this, explain some of the areas of great creativity. Let’s start with a thing called cloud computing, which I guess you’ve pointed out as Bell’s corollary to Moore’s Law.

Gilder: Yeah. As Gordon Bell, who was one of the great figures of digital equipment and is now at Microsoft, propounded Bell’s Law, which is sort of a corollary of Moore’s Law. Moore’s Law is that the number of transistors on a chip doubles every 18 months or so.

And he projected this into Bell’s Law, which is every ten years you got a 100-fold increase in computing capabilities. And this enables and requires a fundamental change in computer architectures. And we’re seeing it today in the rise of cloud computing.

As Eric Schmidt said, when the back plane of your computer runs more slowly than the network, the computer hollows out and distributes itself across the network. And that’s essentially what is underway today, where the actual computing is almost never done or rarely done in the device that you have in your hand or on your desk.

Forbes: Or in even the software. Now, some would say that’s centralization, which the French tried to do years ago, you remember that. But you see it as profoundly different.

Gilder: You still have a lot of processing power. The teleputer has more processing power than whole IBM mainframes that attempted to centralize computing in the past. Computing is more widely distributed than ever before in history. But nonetheless, a lot of the computing is not done where you happen to be. It’s done at the optimal point.

So what it means is that computing power gravitates to its optimal point geographically. And that’s the advent of cloud computing. And it’s resulted in an efflorescence of creativity and computer architectures because everything now has to run at fiber speed, that is, at the speed of fiber optics, which is the speed of light.

And so all the various devices in the entire computer universe have to be upgraded to fiber speed functionality. And that is the transformation that’s currently underway in the world economy — the upgrade to fiber speed. And it’s really my paradigm which I use as an investor to decide where to put my money and my customers’ money.

Forbes: Let’s hit on a couple of the other areas where you see enormous creativity. Interactive video, video teleconferencing and the like. You feel that it’s just exploded in terms of technology.

Gilder: Well, this is absolutely crucial. And this will require another transformation of the existing Internet as great as the transformation from the telegraph to the public switch telephone network 50 years ago or more. That created this great public switch telephone network that could deal with voice — the telegraph system could not deal with voice.

Now, we have this vast data-oriented Internet that hast to be upgraded to do interactive, full-motion, even 3-D video. And that’s a transformation like the transformation to voice. It will require a new network, a completely interactive fiber-speed network. That’s why I’m focusing on fiber speed technologies and the new architectures, new computer architectures that are indispensable to achieve this level of performance.

Bringing IT Home

David Eiswert (Portfolio Manager, T. Rowe Price Global Technology Fund): Most simply, when you think about the changes happening in tech today, in the ’80s and ’90s, you brought tech home from work. Your company had better IT than you had at home because you had no IT at home. One of the most profound changes today is that consumer IT is far advanced beyond corporate IT.

And one of the big trends we’re seeing today is people bring their IT to work. Really, it’s accelerating this year. And what’s enabling that is really a new way to do computing. The Wintel system of PCs is now really being passed up for a lot of good reasons by more open systems, systems running on ARM.

ARM is a European chip maker. They’re not a chip maker, but they’re a designer of chips. And they have a certain instruction set for how their chip works. Well, you can make an ARM chip by Qualcomm or Broadcom or Marvell at a significantly lower cost than you can make an Intel chip. And so, if you can substitute one for the other with a different operating system, you can bring down the cost of computing dramatically.

Here’s another key thing. Connectivity is a huge secular change for people globally. So the idea that in your pocket you have a computer, and the computer is connected to the network and the internet and all the things that the internet brings — when you start thinking about mobile computing and you start thinking about a different way to do computing with different chips, people start to care more about battery life. They start to care more about size, weight.

And so then there’s a change in the compromises you make, as a consumer, around the device you want to own and how it’s built. So there’s an economic change in how the device is built driven by technology disruption and there’s also a change in the consumer taste. Again, go back to combining this with that expanding market and there are big opportunities.

So, when you look at the traditional computing players, Microsoft Windows and Intel, over the last five or six years, they’ve lost a dramatic share of compute if you define compute as being more than just a PC. Right? If you start to define it as smartphones and tablets.

Steve Forbes: Well, you make the point that — smartphones and tablets, there’s going to be more shipped this year than PCs.

Eiswert: That’s right. This will be the first year that smartphones plus tablets are a higher number of units than just PCs. And what’s fascinating about that is those smartphones and tablets, first of all, it’s going to be almost 100% Apple tablets, 90% Apple, running on an ARM chip, running on an Apple operating system.

If it’s not Apple, it’s going to be Android. Running on a Google operating system, which is free, again, running on an ARM chip. So that a whole new market equal to the size of PCs is born. And different players are benefiting from that development.

Forbes: You’ve got a whole new set of players?

Eiswert: That’s right.

Forbes: Discuss some of these. You mentioned Qualcomm, SanDisk, Broadcom.

Eiswert: Yeah. So another thing. Being an active investor and trying to look for change and believing that change in tech drives alpha over time, the way we think about semiconductors, we think, is fundamentally different. It’s not so much who has the biggest factory and who can drive the most processing power; again, it’s about battery life. But it’s also about integration. So the ability to integrate different parts of a semiconductor together to lower the cost. Because you have to deliver this device to billions of people, but it has to be at the right cost.

So, if you look at Broadcom and Qualcomm, both companies use an ARM instruction set to build their chips. Both have a significant amount of intellectual property in how you build chips. But both can integrate multiple parts of the system. For instance, an application processor, which is the CPU of a cell phone, with the modem, with Bluetooth, with GPS, can integrate this all into a single chip and deliver this chip into a device that maybe costs $300 as opposed to $500. And maybe has a battery life of 20 hours versus four hours.

Qualcomm also has fundamental intellectual property around how we do wireless. And so Qualcomm is a company that receives a royalty on every device sold in the world that has a 3G or 4G modem in it. We think that it’s clear that connectivity is going to explode. So owning a name like that has advantages in how you build semiconductors, but also advantages in the business model or the economics of this roll-out in adoption of wireless. So those are two names that jump out.

There are smaller names that we look at, too. We own TriQuint Semiconductor. This is a company that has a $2 billion market cap and they make power amplifiers. And the thing about a power amplifier, it goes into any kind of radio. The thing about the way we’re building new devices is we’re putting more and more radios per device.

So if you can own a company that, where their market size from an old cell phone, from a feature phone to a smartphone, you go from one power amplifier to four power amplifiers — a very positive change in terms of looking at the economics for that company in this space.

So those are really on the chip side. In general, we think the other area around chips is — we think semiconductor capital equipment is being under appreciated. Because in order to build these chips for all these people, you’re going to have to make huge advances in semiconductor capital equipment.

source: forbes.com
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