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Monday, June 25, 2007

Reinvention Characterizes Growth In The Tech Sector

The BusinessWeek InfoTech 100 list makes interesting reading.

Reinvention is the common theme noticed by BWeek that unites the companies on the 2007 Information Technology 100, the magazine’s ranking of the top tech performers. The report also notes the convergence effect that the internet is forcing on the telecom players - it is effectively shattering the boundaries between formerly siloed industries like cable and telecom. The methodology of selection: Companies whose stock price has dropped more than 75%, whose sales shrank, or where other developments raised questions about future performance were eliminated from contention. Companies were ranked on four criteria: return on equity, shareholder return and revenue growth (which were given equal weight), and total revenues (which was weighted). Then the top 100 companies were reranked as a group.

Some of the exceptional stories of growth :

Nokia is recognized for its phenomenal growth: It has become the leading handset maker in India and China and is seeing strong growth in Africa and Latin America.

Amazon.com is seen as the ultimate example of transformation. First it moved beyond selling books to other media, then to electronics, and just about everything else. The next move is working on the next diversification play: offering other businesses spare computing and storage capacity, as well as leftover space in Amazon's huge distribution centers. The strategy has yet to deliver meaningful revenues, or any profits – reflecting a never-ending need to search for the next source of tech growth.

Notable Dropouts: Dell & SAP – Both of them dropped down significantly.

DELL : DELL was still the world's biggest PC maker in 2006, when Dell ranked No. 15 in the list. Since then, HP as bumped it aside, stealing sales and market share with clever advertising and crowd-pleasing products. Dell's traditional strengths - a low-cost model of selling gear over the Internet, a strong U.S. corporate customer base, and an emphasis on desktop computers- suddenly look like weaknesses in a world where laptops dominate and sales growth is strongest in U.S. consumer-oriented stores and in developing nations. Dell's preliminary 2006 sales totaled about $57.1 billion, up just 2% from 2005. That compares with a 19% growth rate in 2004.

SAP : A new line of software from SAP will let customers tap into programs on an SAP server and use SAP functions without installing and maintaining them on their own computers. The strategy could appeal to small and midsize companies that don't have big IT departments. But it also puts SAP into more direct competition with companies such as Salesforce.com and could suck sales from SAP's traditional software lines. Investors are nervous, knocking SAP's stock price down 12% since January and pushing it off the list, down from No. 39 last year.

The point to note here is even these two laggards, are also trying to reinvent themselves – so clearly the tech sector is undergoing a sense of transformation from within. As Fortune notes,the IT adoption of technology across the developing world is going to create a huge opportunity for growth for the tech players. Intel, Microsoft - all are gearing to tap the next wave of growth. Interesting times lay ahead for the tech sector.

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