4,294,967,296 Reasons We Are Bullish on the Tech Sector

Author: David Kotok, Post Date: February 12, 2007
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We are accelerating the release of this commentary due to the CNBC interview of Adobe’s CEO this morning, other positive responses at the Barcelona meeting regarding 3G and the next generations of cell phones.

Global internet technology is about to make another expansive shift. Whether this is something huge or just another good step in the advance of technology is not clear. But some advance is a certainty.

The reason is IPv6.

Internet Protocol version 6 will soon replace version 4. The process is underway. From the Barcelona meeting we are learning that it is moving faster than originally thought. When done, the number of internet addresses will expand exponentially. So will the efficiency of broadband. Network usage will triple. Internet speed and capacity will seem limitless and instantaneous. The ability to create networks will appear to be without limits as well.

The limits of IPv4 are about 4 ¼ billion nodes (internet addresses). This is insufficient to meet the world’s burgeoning needs. Consider that the world’s 2 billion cell phone users require 2 addresses each in order to obtain full service functions. Presently they are serviced by a “work around” situation with proxy servers. That has its limits and its costs.

IPv6 means a whole new generation of cell phone users will have very powerful functions. Eliminated will be the requirement for the cell phone service carrier to check if the call is completed and grab back the dynamic IP address for the next user. Mobility is vastly improved with IPv6. The 3G wireless world has arrived.

Implications for anti-terrorism functions and security & safety uses are potentially huge. Capacity for these functions will enable all sorts of networks for law enforcement, public safety responders and military users. The flip side is that the terrorists will have it, too. This is a concern for some who may want to limit IPv6 in the name of security.

IPv6 means a new and more precise global location system is possible. It means packets of information will be greatly enlarged and transmitted with more speed. list of websites . It means that there are thousands of new applications we haven’t thought of and billions of new internet users. They will range from human beings in third world countries to nearly every device you use. Yes, even your home refrigerator.

The strategic and bullish implications for the tech sector are substantial. Hardware upgrading, software development, routers, servers — the outlook is good for an entirely new generation of replacement devices and intellectual property applications. Other sectors may have negative impacts. Think about it, in a wireless, efficient and rapidly evolving tech world, many things you currently use will disappear. The businesses that confront those sunk costs face the write-offs.

I have a personal example with my three adult children. None has a land line. All use email and a cell phone with current available services for their communication. IPv6 will triple their efficiency and reduce their costs. Their cell phone battery life will be much larger. They will be involved in many personal networks. This list is long.

At Cumberland, we are strategically over weight the tech sector. We expect this will be the case for an extended period of time and IPv6 is one of the reasons. More missives are coming on this subject during the year. We are applying ETF investment strategies in the tech sector in order to capture this strategic growth that lies ahead.

A note is needed about the math. The number in the title (4,294,967,296) is derived by raising the number 2 to the 32nd power. In IPv4, the internet address is a string of 32 binary numbers. A binary number is either a 0 or a 1. That is why there are about 4 ¼ billion combinations of the 32 digit system.

IPv6 expands this to 128 binary numbers. IPv5 was essentially leapfrogged in the development process. In order to calculate the total number of IPv6 addresses one must multiply 4 ¼ billion times itself and then repeat the process with the result of that first multiplication. The exact number is derived by raising the number 2 to the 128th power. The answer is about 340 undecillion addresses. An undecillion as the number 1 followed by thirty-six zeroes.

My personal visual metaphor for this mathematical expansion is astronomical. I picture the present IPv4 system as our galaxy with its many stars. IPv5 would be the universe as we presently believe it to be with its many galaxies. IPv6 would be many of these universes. In each of them a single address would equate to a single star.

Its exciting to be alive, isn’t it?

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