A recent article about trends in the stock market for technology stocks had some very interesting insights (see: Four Trends In The Public Technology Market). I am not reproducing the charts from the article so you may want to link to it a more in-depth perspective. Below are some of the key highlights:
- Boom, bust, boom: Over the past 30 years, technology companies have boomed, busted and boomed again. In 1980, the global market cap of technology companies totaled $50B, 1.7% of all global equities. Ten years later, tech market caps tripled to $176B. Then, technology companies entered hyper-growth, registering 140% annual growth rates for ten years surpassing $8T in global market cap in 2000. At its zenith, IT companies represented one-fourth of all equity value in the world – pure euphoria. At its post-2000 nadir three short years later, technology market caps deflated 63% to $3T. Today, the sector has settled: technology equity is worth $7T and represents 14.7% of the total global market cap.
- Fragmentation of tech market: In 1990, technology oligarchs controlled the industry. The largest 10 IT companies represented over 80% of the value of the entire IT sector. In 2000, at the height of the boom, that figure dropped to 5% due to the overzealous IPO glut. In 2012 the top 10 companies’ shares rebounded to 30% of total IT market cap, marking a healthy and competitive industry.
- The P/E ratios of most of todays titans: At its peak Microsoft’s market cap eclipsed $640B in 2000, 14% larger than Apple’s current value $565B. Simultaneously, Docomo and Cisco each amassed market capitalizations of $360B, which equalled Apple’s market cap in January 2012 and bested the second largest tech company, Microsoft, by 65%. Today’s tech industry has its share of titans, but at an average 17 price-to-earnings (P/E) ratio, these giant’s valuations fall within the current market norms and are a distant cry from the 70 P/E characterizing the bubble.
- Software dethrones hardware: In 2000, software dethroned hardware as market leader. Growth in IT spending fueled this boom as enterprises clamored to install new technology stacks. Microsoft surpassed IBM, who fell off the top 10 list. Oracle trailed closely, growing with the demand for enterprise databases. Networking and telecom remained at the table as PC sales boomed as telcos deployed the networking infrastructure to interconnect millions of terminals.
- Mobile becomes dominant; In 2012, mobile became the zeitgeist. Samsung and Apple rocketed to the fore. Mobile carriers form the largest bloc comprising ATT, Verizon, China Mobile and Vodafone. A reinvigorated, software-services-focused IBM joined Microsoft and Oracle representing enterprise software. Google cracked into the rankings as the sole entrant embodying pure Internet.
- Persistence of Microsoft and Intel: Through it all, Microsoft and Intel are the only companies present the top 10 market caps each decade, a testament to technology’s relentless pursuit of invention and innovation.
A few of the key points captured from the article my attention. First the idea of the 1990 "technology oligarchs" being dethroned. Secondly that the the P/E ratios of most of the tech giants fall within today's market norms. Third that many of today's market IT leaders produce software rather than hardware. Finally that mobile computing is now so important.
I have posted previous notes about Microsoft in the past (see: The Decline of Microsoft: The Clues Seem to Be Obvious; Why Steve Ballmer, CEO of Microsoft, May Be in Trouble). Despite the fact that the financial markets still hold Microsoft in relatively high esteem, the company is viewed as an also-ran by many consumers and IT enthusiasts. Here's a quote from a longish but on-point article about how Microscoft might be able to turn-around its sketchy reputation (see: How can Microsoft clean up its bad reputation?):
I think now Microsoft needs to put the same amount of effort that they put into improving the reliability of Windows 7 into convincing the public that when they introduce a new product or service, they’re “all in” for the long haul. They need to make us believe that the cool new technology they show us today won’t disappear in six months....Companies are too quick to abandon anything that doesn’t catch on immediately. And it extends far beyond the tech industry....It’s a societal problem, but Microsoft could go against the grain by being more selective about the products and services they introduce and making a real, long-term commitment to those they do choose to release. A key element in getting past a bad reputation is to replace it with a reputation for treating others well. In the case of a company like Microsoft, that means your customers, your partners, your employees, even your competitors....They might not have a choice if they want to survive and thrive.