Industry Bifurcation?

Apple reported record sales in the most recent quarter, thanks to its upgraded iPhone line. But it was almost alone among the big technology firms in doing so. Profits reported for the same period, have fallen at Google as well as at IBM, SAP and VMWare.

IBM has done more financial engineering than the real kind in recent years by its $100 billion buyback of its own shares since year 2000. It has shed less profitable assets, but now lacks a big fast-growing business. It even started layoffs in India recently. The earnings at VMWare dropped because of a recent acquisition. Some firms are having difficulty shifting to new trends such as cloud computing. SAP and Oracle are seeing more of their business shifting to the cloud. That requires big investments in data centers and yields lower margins, at least initially. Workday, a cloud-based HR products company has been enticing existing customers (of SAP and Oracle) due to its low cost and better usability.

Google, for example, is hit by the shift of users to mobile devices, where advertising rates are lower. Apple and even Yahoo are taking advantage by their shift to mobile-advertising sales (Yahoo got 17% of its revenue of $1.1 billion on these sales in the past quarter). More fundamentally,  the IT industry is maturing and seeing slow revenue growth of only 3% (according to Boston Consulting Group). The biggest sectors such as hardware, business software, and IT services are growing slowly or even shrinking.

This is the “bifurcation” (between new emerging trends and old traditional segments) which will lead to big restructuring of the industry. HP recently talked about breaking up its business to separate entities. IBM continues to shed unprofitable businesses. Others like SAP are buying web-based travel and expense management company, Concur (for $8.3 billion!). Oracle continues to acquire more and more companies with cloud technology for the growth of its cloud business. During the Oracle Open World in late September, the whole theme centered around Cloud and to some degree mobility.

The recent disappointing results are another harbinger of an unbundling and rebuilding of the IT industry. It will be hard to tell how the new landscape will look like at the end of the process. But Apple continues to prove that bold innovations and winning user’s mindshare can bring big rewards. Older incumbents must learn a few lessons from Apple’s success.

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One response to “Industry Bifurcation?

  1. Pingback: Industry Bifurcation? | @CloudExpo [#Cloud #IoT] | Compulsys

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