Exciting 2010 Outlook For Software Sector (MSFT, CTXS, VMW, SYMC)

Deutche Bank (NYSE: DB) in a recent report has highlighted exciting times for the software industry in 2010. Deutsche has stated that four themes will dominate the industry in 2010: Enterprise adoption of Windows 7, Cloud computing, increasing importance of security and consolidation in the industry.

In what could be music to Microsoft’s (NASDAQ: MSFT) ears, Deutsche believes that Windows 7 will be one of the most successful OS releases and expects it to grab 7% market share in January and eventually overtake Windows Vista in six months. What could also help Windows 7 is an ageing installed PC base and lower adoption of Vista. These two factors alone could generate $400 million in incremental revenue for Microsoft in 2010. The adoption of Windows 7 is also expected to impact desktop virtualization, Windows management and security.

The trend towards desktop virtualization would benefit players like Citrix (NASDAQ: CTXS) and VMware (NYSE: VMW) while Symantec (NASDAQ: SYMC) and McAfee (NYSE: MFE) are expected to benefit on the security front.

2010 is also expected to be the year when cloud computing realizes its potential. Deutsche believes that enterprises will adopt a mix of public and private clouds wherein less business-critical applications like messaging, hosting of corporate intranets and customer relationship management (CRM) are hosted through public clouds while ERP systems function in private data centers. Virtualization remains the key for cloud computing to take off and analysts expect VMware, Citrix and Microsoft to benefit from the advent of the cloud.

Akamai (NASDAQ: AKAM) could be another beneficiary as more applications move online and enterprises scout for third party providers to enhance performance.

The Deutsche report points out that the last six years have seen an exponential jump in malware threats, with worrying increasing complexity in the nature of attacks. These trends point to an increase in demand for IT security benefiting Symantec and McAfee.

After a muted 2009, Deutsche expects companies to loosen their purses and aggressively pursue M&A opportunities. Software giants like Microsoft, Oracle (NASDAQ: ORCL) and Cisco (CSCO) are expected to prowl for acquisitions while McAfee, Symantec, Tibco (NASDAQ: TIBX) and Rovi (NASDAQ: ROVI) are expected to be high potential acquisition targets. Akamai, Verisign (NASDAQ: VRSN) and Dolby (NYSE: DLB) amongst other are touted as low potential acquisition targets.