High-tech firms must move services to boost profits
By Duncan Martell
PALO ALTO, Calif., May 3 (Reuters) - In high technology, it
used to be that building widgets was enough to make fat
profits, whether it was manufacturing and marketing personal
computers or making the chips that powered them.
Not anymore.
PC prices plunged below the $1,000 mark well over a year
ago, and the blistering growth of the Internet has changed all
that. Technology heavyweights -- including Intel Corp., Dell
Computer Corp., Compaq Computer Corp. and Lucent Technologies
Inc. -- are now crowing about becoming "solutions providers."
Since hawking boxes and chips is not enough, these same
companies now want to be one-stop providers of all manner of
high-tech services. For one, Intel, the world's largest chip
maker, is angling to build dozens of vast data centers to store
information for companies.
Another example is fast-rising start-up Exodus
Communications Inc., which by the end of the year will have
more than 20 so-called Internet data centers. The company
powers Web sites for online auctioneer eBay Inc., computer
maker Sun Microsystems Inc. and free e-mail provider HotMail.
"The outsourcing market for Web hosting is shifting from
the consumer" to businesses, Ellen Hancock, president and chief
executive of Exodus, told investors at the Hambrecht & Quist
technology conference in San Francisco. And that's the reason
the company bought Cohesive Technology Solutions Inc.
To build a data center costs, on average, $888,000. And
before much longer, a company may need another one in New York,
London, Tokyo and so on. On the other hand, companies can give
Exodus $148,000 -- its average annual revenue per customer.
The trend is going beyond just businesses.
Even high-tech companies that cater to consumers are
recognizing that hawking boxes is not enough. At last week's
Hambrecht & Quist Technology conference in San Francisco, the
chief financial officer for Gateway Inc., the second-largest
direct seller of PCs, conceded it's no longer enough just to
sell PCs.
"We want to provide all the solutions around the PC," John
Todd told investors at the technology conference. The company
now offers customers an Internet connection when they buy
Gateway PCs and offers a one-stop shopping feature it calls
"Your:)Ware."
Intel, at its most recent meeting for analysts, unveiled
its biggest, boldest push into new markets since the late
1980s, when it bailed out of the memory chip business it
invented for the greener field of microprocessors.
The Silicon Valley giant plans to build data service
centers so that small- to medium-size businesses can set up
electronic commerce activities, as part of its new business
group's emphasis on the Internet. Eventually, the chip maker
will have a vast network of "server farms" -- groups of
powerful computers that store data.
International Business Machines Corp., on the other hand,
is considered an old hand in the services business. It has been
bundling its computers with its own services for more than a
decade, and the business now accounts for more than 30 percent
of IBM's annual sales.
For example, IBM supplies computer operations management
consulting and technical services to a blue-chip list of
corporate clients -- a business that is growing 20 percent a
year, or 50 percent faster than the overall industry.
"One of the things we like best about this opportunity (in
services) is that it's big -- twice as big as hardware, and
there is no dominant competitor. At least not yet," IBM
Chairman Louis Gerstner told shareholders last week at the
company's annual meeting. |
