THE INFO TECH 100 (DELL is # 1)
from Business Week 11/2/98
businessweek.com@@b7juWGUAdhlTiAAA/premium/44/covstory.htm
(see bold below and article to follow, lw)
The world's best-performing information technology companies
If you had to pick the world's hardest-charging technology company, which
one would it be? For most of us, the initial choice would be Microsoft Corp. Bill
Gates & Co. have honed aggressiveness into a near-art--with amazing
results. The company has a stranglehold on desktop software. It has gained
the upper hand in Internet browsers. It boasts $17.2 billion in cash, the most
of any U.S. company. And now it's shoehorning its software into everything
from TV set-top boxes to burglar alarms.
But this year,take nothing for granted. The tech industry is undergoing
sweeping change brought on by the Internet, the rise of wireless
communications, the fast-approaching Millennium Bug, and the economic
turmoil spreading around the globe. And while Microsoft remains a daunting
powerhouse, all is not what it used to be.
We took a careful statistical look at performance in the high-tech industry and
unearthed a batch of surPrises. For one, mighty Microsoft is playing second
fiddle to SAP, the German software maker of programs that automate all the
big jobs in a company--finance, manufacturing, and inventory control. Intel
Corp., the computer-chip maker on its way just a year ago to becoming the
most profitable company in the world, has stumbled. Instead, Britain's
Vodafone Group PLC and Finland's Nokia Corp. have rocketed to the toP by
riding demand for wireless communications. And tiny MindSpring Enterprises
Inc. has elbowed its way into the circle of Internet elite.
These are some of the findings in BUSINESS WEEK's first annual Information
Technology 100. The purpose of the ranking is to take a quantitative look at
which companies are the top performers in what is fast becoming the world's
most important industry. In the U.S., technology contributes roughly 30% of
the growth in gross domestic product, adding over $1.1 trillion to national
output in the past three years. ''Technological change is the ultimate driveR
of increases in standards of living,'' says Paul M. Romer, professor of
economics at Stanford University's Graduate School of Business. ''Without it,
growth stops.''
How did we come by our ranking? We started with high-tech companies culled
from the database of Standard & Poor's Compustat and then added non-U.S.
companies. We divided the tech companies into eight categories, including
software, networking, and the Internet. Since revenue growth is the
touchstone of technology, we eliminated the companies that didn't grow as
fast as their industry.
Then, all the remaining companies were judged on four key criteria that were
given equal weight. Again, revenue growth was used. Total revenues were
factored in as recognition that absolute size is important. Shareholder return
is included because it's the free market's objective measure of how a
company is performing. And we counted return on equity because--call us
old-fashioned--we think profits matter. Hats off to Dell, Vodafone, and SAP.
They top the inaugural Info Tech 100.
The ranking, however, is about more than bragging rights. It's also a weather
vane that shows where information technology is headed. Look closely, and
you can see the broad currents and secondary eddies washing through the
technology field. Even where trends are obvious, such as the rise of the
Internet, the Info Tech 100 spotlights the companies that are leading the way.
BIG IRON, TOO. Ultimately, the list forces a reexamination of what we think
we know about technology. You've heard that nobody uses mainframe
computers anymore? Tell that to No. 7-ranked Compuware Corp. or No. 17
BMC Software Inc., which are practically printing money by selling software
tools for the industry's big iron. ''People announced that the mainframe was
dead five or six years ago--that's just not how it worked out,'' says Peter
Karmanos Jr., CEO of Compuware. Karmanos is doing so well that he bought
the National Hockey League's Carolina Hurricanes.
The Asia turmoil must be dragging down all the tech companies in the Far
East, right? Wrong. Check out Taiwanese motherboard maker Asustek
Computer Inc., which ranks 18th, thanks to an 85% surge in sales. Or
25th-placed Hon Hai Precision Co., a Taiwanese computer manufacturer with
65% revenue growth.
And then there's the Big Enchilada of techdom--the Internet. It's not just that
more people are signing up with America Online Inc. and looking at Yahoo!
Inc.'s Web site. The Net is ushering in profound change. Its vast, speedy
reach is prompting companies to rethink every millimeter of their
business--how to link up instantly with suppliers, contractors, manufacturers,
and especially customers. To get the most out of the new Net economics,
companies are automating internal functions right down into the bowels of
their businesses. ''The Internet really is the biggest change of the last 100
years in the technology world,'' says John W. Sidgmore, vice-chairman of MCI
WorldCom Inc., a major carrier of phone and Net traffic.
The ranking is chock-full of companies that have figured out how to build the
networks for the new era. Top-ranked Dell Computer Corp., which almost
tripled shareholders' money in the year ended Sept. 30, is the supplier of
choice for corporate PCs, the gateways to the networked world (page 112).
No. 11-ranked Cisco Systems Inc. provides the routers and switches to carry
the digital lifeblood of companies across far-flung networks. And SAP and No.
34-ranked Oracle Corp. sell the enterprise and database software that tie it
all together. When a salesman secures a big order, for example,
manufacturing is automatically notified.
The top 100 also is a reminder of just how brutal tech competition can be.
Former powerhouses like Motorola Inc., Apple Computer Inc., and AT&T
Corp. didn't make the cut. Noticeably low on the list is Compaq Computer
Corp., the largest PC maker in the world, limping in at No. 97. The company
suffered a loss of $2.4 billion for the 12 months ended June 30, and
shareholders took a 15% hit during the year ended Sept. 30. The reasons for
the subpar performance? Compaq took a huge charge because of its
acquisition of Digital Equipment Corp., and the surging popularity of
sub-$1,000 PCs crunched margins.
Count Intel as another victim of cheap PCs. The company is half of the
''Wintel'' juggernaut with Microsoft. Now, with sales growth slowing to a mere
2.5%, it ranks a mediocre No. 47 on the Info Tech 100. Still, Intel may not be
down for long. Third-quarter profits--not counted in this ranking--outdistanced
analysts' expectations.
Intel aside, less expensive PCs have benefited other technology companies
by getting computers into the hands of more people. Some 46% of U.S.
homes have PCs now, compared with 39% in 1996, according to International
Data Corp. Most rewarded are the players in the booming Internet field--AOL,
Network Solutions, and Amazon.com, to name just a few. Even companies
providing access to the Web, a business written off just a year ago as
hopelessly unprofitable, are flourishing--witness No. 35-ranked MindSpring
Enterprises (page 114).
MOBILE MANIA. Perhaps the only technology boom that can give the Net a
run for its money is wireless communications. In developed countries, mobile
phones are popping up on beaches, in cars, on hiking trails--you get the
picture. In parts of countries such as Brazil and China, they're being adopted
as the only means of communication. That has driven the number of users
worldwide to 213.7 million at the end of 1997, up from 144.2 million a year
earlier, according to the International Telecommunication Union. The prime
beneficiary is Vodafone Group, which provides wireless service in Britain and
a dozen other countries (page 114).
There are even a few new twists in the basic phone business. Consider
Century Telephone Enterprises Inc. The Monroe (La.) company has taken the
road less traveled--marketing phone and high-tech services in rural and
suburban markets. These are the regions that most experts say are being left
behind in the Information Age. Shows how little they know. Century sells
services, such as Net access or caller I.D., to 18.6% of its customers.
Such are the surprises in BUSINESS WEEK's ranking of tech superstars.
Plunge on for more.
By Peter Elstrom in New York, with Catherine Yang in Washington and bureau
reports
Copyright 1998, by The McGraw-Hill Companies Inc. All rights reserved.
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