VERIZON
Description
Companies that provide voice, data, and video communications services.
INDUSTRY OVERVIEW:
It's not your father's phone company. And your grandkids won't likely recognize it. The revolution in our ability to transport data (communications) and our ability to manage it actually are converging to make even the term "telecommunications" seem obsolete. Bound too for the etymological dustbins are terms like dial-up, Baby Bell, third-generation (3G), long-distance, and even local. When I was a kid, my father used a code system to let my grandmother know we had made it home from a visit to her house. He would call her and let the phone ring twice before hanging up. That way our grandmother knew we were home safely and Pop saved the cost of a long-distance phone call. But competition has forced down the cost of long-distance and we no longer need to use the code system. When the antitrust busters broke up AT&T Corp. in 1984 (creating new regional Bell operating companies, often called Baby Bells), the company held about 70% of the US long-distance market. A brief 20 years later, what was once the country's phone company had given up on consumer phone services altogether and has been acquired by a former offspring (Texas-based SBC Communications) to create a new AT&T Inc. The new AT&T acquired sibling BellSouth for $86 billion in the largest telecom takeover in US history. The two other major long-distance carriers -- Sprint and MCI -- have differing stories. As a result of competitive pressures and falling revenue, both have moved away from local and long-distance services. Much like Ma Bell, MCI has focused on its transport network services for global corporate business. And like AT&T, MCI has been taken over by Verizon Communications, another former Baby Bell. Sprint has focused on its wireless business and has acquired rival Nextel Communications to form Sprint Nextel). Will traditional local calling be the next line of business to go the way of long-distance? It's happening. Local phone service providers, especially CLECs like Birch Telecom and McLeodUSA but even Baby Bells like Qwest Communications are hurting in their bottom lines because of shrinking revenues (and customer numbers) from local calling business. Consumers no longer require multiple lines to accommodate extensions or Internet service connections and many are giving up even the single old copper phone lines and choosing wireless carriers. Traditional and competitive local phone companies are feeling competitive pressure from others, too. Cable TV operators are finally getting some share of the phone business and utilities are trying to gain entrance into the market. Yet concepts like "local" and "long-distance" are being voided by VoIP. With the advent of packet switching and Internet protocol (IP) networks like the one operated by Level 3 Communications, consumers have alternatives to traditional phone companies and their first-generation of competitors. Companies like Vonage and Skype promise to further revolutionize the industry. The biggest competitive advantage a traditional phone company can have is some corner on the market for wireless services. Cingular Wireless, the US market leader after its acquisition of AT&T Wireless, became AT&T Mobility after BellSouth was acquired by AT&T. Verizon Communications owns a share of #2 Verizon Wireless, its joint venture with UK-based wireless giant Vodafone Group. The nation's third-largest wireless carrier, Sprint, has substantially increased its size with the acquisition of former #5 carrier Nextel Communications. And the new Sprint Nextel has the future of communications in mind as it develops technology for what has been described as the future of telecommunications -- wireless broadband. What will our grandkids' phone company look like? It is impossible to accurately predict the future but it is a safe bet that phones with cameras and computers that make phone calls will one day be as old-fashioned as rotary handsets and telephone poles.
IBM
Description
Companies that design and manufacture personal and large-scale computers, peripheral devices, data storage systems, networking equipment, point-of-sale (POS) devices, automated teller machines (ATMs), and other computer-based systems.
INDUSTRY OVERVIEW:
Encompassing products ranging from mice to mainframe computers, the computer hardware industry serves an equally wide range of customers -- from consumers purchasing PC peripherals to multibillion-dollar global corporations installing entire networks. Accordingly, industry players include companies that focus exclusively on enterprise or personal computing, as well as companies that successfully cater to both markets. Market definition plays a key role in a sector marked by frequent acquisitions, rapid spending swings, and bitter price wars. Highly diversified vendors like IBM and Hewlett-Packard (HP) bolster themselves against a volatile hardware market with product and market breadth. Not exclusive to the Western hemisphere, the bigger-is-better strategy is also practiced by Japanese conglomerates such as NEC, Fujitsu, and Toshiba. Having such diverse product lines not only provides some insurance, it also allows technology vendors to be one-stop shops for enterprise customers with equally diverse needs. This model might at first sound like the technology market's equivalent to Wal-Mart, but high-tech products require high-tech services, and these organizations include highly trained (and highly lucrative) armies of consultants and support staff. Of course such sprawling operations can also breed inefficiencies, and these companies must constantly evaluate the viability of every operation, weighing internal and external benefits. For many years IBM maintained a PC business that produced little or no profit. It finally sold the unit to Lenovo, at the same time forming a close partnership to insure a seamless customer experience. Others have achieved market leadership by focusing on a particular product group; examples include Cisco Systems (IP networking), EMC (data storage), and Sun Microsystems (UNIX-based servers). But even these companies have expanded far beyond the core product lines that made their fortunes. Once known only for corporate and telecom networking, Cisco has turned its attention to dominating home networking; EMC, once one of the purest hardware plays, used its cash to become a leading provider of storage management software; Sun, traditionally one of the most adamant proponents of proprietary technology, now offers Windows and Linux-based systems. Such transformations are necessary for survival. For every market leader there's a hard-charging challenger armed with lower prices or a rival technology. Juniper Networks managed to steal market share in mighty Cisco's core router market, EMC has felt pricing pressure from companies such as Hitachi Data Systems, and Sun Microsystems faces a two-front assault from UNIX vendors and the all-threatening Intel/Microsoft juggernaut. In the PC market HP and Dell rule -- HP through a variety of sales channels and Dell using its pioneering direct-sale model. Companies lacking the size to compete in the escalating market share race rely more on product differentiation and branding. With an eye for aesthetics and its user-friendly software, Apple survived with this tactic even before it became the reigning king of digital music. Companies such as Gateway, lacking both a unique offering and the scale required to effectively compete on price, have been forced to scale back operations. Some believe that computer hardware has essentially become a commodity, a valid description of some hardware markets where products differ very little and margins subsequently shrink. The disk drive market, for example, has seen manufacturers compete in intense price wars. The battle between Seagate Technology and Maxtor ended only when Maxtor was acquired by its rival. Battles waged for the hearts and minds of hardware buyers often center on competing software standards. While the most high-profile example in the PC realm was the war waged between Apple- and Microsoft-powered PCs, similar clashes occur in other sectors. In the PDA market devices running the PalmSource operating system contend for share against devices featuring Microsoft's handheld OS. The enterprise computing market has its own set of standards issues, from competing storage networking technologies to the server OS contest between UNIX-, Windows-, and Linux-based systems. Regardless of the product being offered, the intrinsic boom-bust nature of the tech sector challenges hardware companies to constantly reexamine the way they do business. Hardware sellers are increasingly turning to contract manufacturers, finding the outsourcing of the actual construction of components cost-effective. The even more predominant trend is a branching out into ancillary services. IBM paved the way with great success, a fact not lost on countless hardware vendors that have come to recognize recurring service revenues as a cash cow. Some companies have gone as far as to completely transition from selling hardware to offering integration and support services. In a robust economy leading hardware companies look to global expansion, seeking opportunities in countries such as China, where markets have yet to be saturated. Acquisitions also fuel growth, and in bull markets companies such as Cisco harvest new technologies and key personnel by acquiring startups. Consolidation is not limited to prosperous periods, however. During lulls, consolidation, often in the form of asset buyouts, sweeps the industry as hardware makers await the next upswing.