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Tech works
Cisco and other tech companies could see a boon from President-elect Obama's proposed stimulus plan that is heavy on tech infrastructure.
infrastructure by Thomas Black | Bloomberg News
Cisco Systems Inc., General Electric Co. and Emcor Group Inc. may be winners as President-elect Barack Obama seeks to revive the U.S. economy by rewiring classrooms and libraries for high-speed Internet service and repairing bridges and highways.
While industrial giants such as U.S. Steel Corp. and Caterpillar Inc. were called on to build 47,000 miles of roads, bridges and tunnels under President Dwight Eisenhower in the 1950s, technology companies will be tapped under Obama to improve efficiency at hospitals and schools, ease congested traffic and make alternative fuels work, say analysts and company executives.
The president-elect's transition team hasn't put a number on the package. Economist James Galbraith, a Democratic Party adviser, recommends spending of more than $900 billion.
"This is a non-traditional stimulus," says Frank MacInnis, chief executive officer of Emcor Group Inc., a Norwalk, Connecticut-based maker of systems for voice and data, electrical power and lighting. "These new priorities of the Obama administration are indicative of the way that systems installation is capable of improving the efficiency of existing facilities."
Investors drove up shares of construction companies and steelmakers including Cemex SAB, Fluor Corp. and Olympic Steel Inc., by close to one-quarter yesterday after Obama said in a Dec. 6 radio address he'd launch "the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s."
Cisco, the world's biggest maker of networking equipment, rose 8.2% in trading on the Nasdaq Composite Index yesterday.
That was twice the increase the Nasdaq 100 recorded that day, and it may still underestimate the benefit such suppliers of technology products and services could realize under the Obama plan, says Dan Kusnetzky, founder of Kusnetzky Group, a research firm in Sarasota.
Just as the highway program moved the U.S. into a new era in the 1950s, the federal government can lead the way toward an information-based economy, says Terry Alberstein, senior director of corporate public relations for Cisco in San Jose, Calif.
"It's critical that government and industry work together to create a 21st century digital infrastructure that ensures U.S. economic competitiveness and job growth in areas like science and engineering," Alberstein says.
'Smart' highways
Even something as basic as highways now have the capability of being "smart" by alerting motorists to congestion and helping re-route automobiles to keep traffic flow smooth, Emcor's MacInnis says.
The 1956 investment program reflected an era of rapidly increasing automobile use as well as Eisenhower's desire to improve domestic defenses during the Cold War. Obama's infrastructure plans resemble the interstate highway program in ambition and scope; its components, on the other hand, reflect a computer and Web-driven economy.
Manufacturing accounted for 27% of the U.S. economy during the 1950s and 30% of employment. Today, manufacturing has shrunk to about 12% of the economy and provides one out of every 10 jobs.
Upgrades of roads and bridges that have fallen into disrepair after years of under-spending on maintenance will be one way to create jobs quickly. Every $1 billion spent on road work creates about 35,000 jobs, according to October congressional testimony submitted by the U.S. unit of Ireland's CRH Plc.
European building-materials companies, such as CRH, are poised to benefit from a U.S. stimulus package. To create an additional 2.5 million jobs via construction over the next two years, the U.S. will need to spend an additional $90 billion to $100 billion, according to Tobias Woerner, an analyst at MF Global Ltd. in London. That level of spending could result in a net increase in building-material volumes of as much as 20% for next year and 2010, the analyst say, with the main beneficiaries being CRH, as well as Lafarge SA of France, Holcim Ltd. of Switzerland, and Buzzi Unicem SpA of Italy.
Peoria, Ill.-based Caterpillar Inc. generated 63% of its revenue in 2007 through sales of mining and road-building gear. It estimates the U.S. will need as much as $700 billion in infrastructure spending to compete against China, where new roads, bridges, ports and airports are giving companies an edge, Group President Doug Oberhelman said in an October interview.
Cement and Steel
Whether building networks or highways, makers of steel and cement and other basic materials are in line to benefit, Michael Siegal, Olympic Steel's chief executive officer, says.
"We are so far behind where we need to be, whether you're talking about roads, bridges, sewage plants, wind-power plants, ethanol plants or nuclear plants," he says.
Bedford Heights, Ohio-based Olympic surged $3.83, or 25%, to $19.02 in New York Stock Exchange composite trading yesterday. The American depositary shares of Cemex, the largest cement producer in the U.S., jumped $2.07, or 28%, to $9.40.
Along with upgrading highways and bridges, Obama is focusing on the needs of schools and the nation's information network.
The president-elect proposes putting more computers in schools and extending and improving Internet broadband coverage.
"Given the increased complexity of the economy, those things are more of a focus and they reflect the technological sophistication of where the economy is today," says Alec Phillips, an economist with Goldman Sachs Group Inc. in Washington and a former Senate Finance Committee staffer.
Obama also says he "will launch a massive effort to make public buildings more energy-efficient."
Fairfield, Conn.-based General Electric began gearing up for a transition to a green economy in 2005 with a program called "ecomagination." The company spends $1.4 billion annually to develop energy-efficient product lines such as locomotives, jet engines and power-plant equipment, including wind turbines and solar power.
GE may also benefit from investment in water treatment, lighting efficiency and so-called "smart grid" electrical distribution, says Peter O'Toole, a spokesman. The Obama focus on modernizing the health-care system could also mean business for the company, he says.
Electronic records
That said, not all of the infrastructure improvement will have to be paid for by tax dollars. Allscripts-Misys Healthcare Solutions Inc. has already seen a fivefold increase in the number of U.S. doctors using its electronic prescribing software, before any federal money has been appropriated, according to Chief Executive Officer Glen Tullman.
The health-care industry's "dramatic acceleration" toward electronic records for cost-savings and increased accuracy may lessen the need for $50 billion in public financing, says Tullman, whose company is the largest U.S. provider of software to doctors.
The CEO, who was speaking yesterday to a forum in New York sponsored by Nasdaq OMX Group Inc. and Leerink Swann & Co., is a member of the Obama campaign's health-care advisory committee.
While a technology-based economy will mean funds are spent differently than 50 years ago, the political wrangling over who gets the money will likely remain the same.
"Solar can help the economy, the environment and energy security faster than any other industry," says Barry Cinnamon, chief executive officer of Akeena Solar Inc., a rooftop power- system maker, based in Los Gatos, California. He says his company can create jobs in two weeks and add $40,000 to the value of a home for every $10,000 spent on sun-powered panels.
Obama's plan could also help the U.S. catch up to the European Union in the use of light rail networks to help ease traffic in major cities and reduce carbon emissions, according to Dwayne Wilson, president of Fluor's industrial and infrastructure group, based in Irving, Texas.
"Those are opportunities that the funding in the stimulus plan could support," Wilson says. "With light-rail programs, that's something the country can benefit from in the short term."
The U.S. still remains behind the European Union in the use of privately funded projects with government participation to address infrastructure spending constraints, he says.
Fluor owns 25% of a company that's widening and rebuilding 37 kilometers of highway by 2010 and operating and maintaining 52 kilometers of German highway between Munich and Augsburg at a cost of $340 million.
The company has participated in public-private highway and rail projects in the Netherlands and the U.K.
Obama's immediate goal is to create jobs, regardless of which industry they're in, says Ron Hira, a public-policy professor at the Rochester Institute of Technology in Rochester, N.Y.
His secondary goal is "putting money into tools, technologies and infrastructure that help Americans become more productive in the long term."
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