The Info Tech 100
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. 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.
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.
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.