Table 5 - Key Competitors in the Information Technology Industry
|Firm||Segment||Sales (2006, in millions)||Employees (2006)||Worldwide Activities
(NC in bold)
|Specific Product Markets||Key Brands or Customers|
|RF Micro Devices||Semiconductors; Specialized components||1,023.6||3,252||R&D; wafer manufacture; wafer fabrication; testing; logistics||Semiconductors and components for wireless handsets and infrastructure||Cisco Systems, Sun, IBM, Apple, Sony, HP|
|Flextronics||Specialized components; Product assembly; Distribution; Electronic services; Original Design Manufacturing||18,853.7||116,000||Design; component manufacture; product assembly and distribution; customer support; supply chain advising||Wireless communication devides, servers and hardware, telecommunications equipment, home electronics||Nortel, Ericsson, Xerox, Casio, Alcatel, Microsoft, HP, Dell|
|Red Hat||Operating System||400.6||1,800||Headquarters; software development||Linux and business IT services||Red Hat Enterprise Linux|
|Solectron||Electronics manufacture; Integrated supply chain services||10,560.7||44,500||Product design. lean manufacturing capability, post-manufacture services||Electronics manufacture, supply chain management||Cisco, Sun, IBM, Apple, Sony, HP|
|SAS||Business Software||1,680.0||10,000||R&D; software development; sales and marketing||Business software||SAS 9.0, MarketMax|
|Nortel||Communications equipment, telecommunications||11,418.0||33,760||Broadband, Voice over IP, multimedia services||Telecommunications||Nortel|
|IBM||Computer hardware manufacture||91,424.0||355,766||R&D; manufacturing of electronics; distribution of products; customer financing||Services, computers, mainframes and servers, storage, peripherals, software||IBM|
|Sources: Hoover's Corporate Annual Reports; and Corporate Web Sites|
The last ten years have been a decade of upheaval for the Information Technology industry, both globally and in North Carolina. The corporate trends witnessed are a direct consequence of the industry dynamics discussed in the value chain analyses.
One of the most important trends has been the steadily declining price of hardware products under the pressures of aggressive global competition. To preserve the bottom line, companies have to cut costs, and global outsourcing to low-wage countries in East Asia has proven to be by far one of the most effective solutions. This has contributed to the rapid decline of the manufacturing segment of the value chains in the United States, as discussed in the Workers and Jobs section. It also created a niche for companies offering global outsourcing solutions and total supply chain coordination and management, such as Flextronics and Solectron.
A direct consequence of outsourcing is the progressive deverticalization of traditional companies. The trend was set by IBM in the 1980's when it broke ranks with its vertically integrated industry and delegated software to Microsoft and chips to Intel. As discussed in the hardware section of the value chains section, this shifted much of the industry to horizontal competition within individual segments of the chain. This also opened considerable opportunities for contract manufacturers, such as RF Micro Devices, which provides specialized analog chips for the telecommunication industry.
Before the burst of the technology bubble, major companies were aware of volatility in industry segments and have diversified in order to spread risks. This is apparent in the case studies that follow. It is likely the case that small start-ups will find it advantageous to specialize on a very narrow niche so that they can focus their resources and compete with larger rivals.
RF Micro Devices
In just 13 years after its conception, RF Micro Devices1 has become a major industry driver in the market for analog chips for wireless communication and networking applications. Started as a small design bureau in Greensboro, NC, it has expanded into a major vertically integrated corporation with more than 3,200 employees, more than $1 billion in sales, a marketing presence in eight foreign countries, and manufacturing capabilities in North America and East Asia. Among its major clients are Nokia, Motorola, Samsung and Qualcomm. The company is of interest not only because of the important role that North Carolina plays in its global network, but also due to the company's positioning in the semiconductor value chain, aggressive technical innovation and vertical integration as critical aspects of its strategy.
RFMD benefited from its position in the high growth and stable market for analog chips. In addition, the industry structure of telecommunication equipment manufacturing is a modular one, with leading players seeking to contract out manufacturing of critical components, such as chips. This provides a spacious niche for specialized suppliers, such as RFMD. The company has made special efforts to market itself as "a one-stop solution" for the needs of a diverse set of manufacturers. While it has specialized exclusively within the semiconductor segment, it has avoided narrow specialization in one activity. It provides both standard models and custom-designed products. To facilitate this effort, the company maintains a generalist system-level expertise, aggressive innovation and a portfolio of process technologies, as well as a concerted push for a vertical integration.
The most important piece of the company strategy is increasing vertical integration through organic expansion, acquisitions, and strategic alliances with both suppliers and customers. This creates a number of advantages, such as greater reliability, better control over costs, delivering the most value for customers, and an increase in bargaining power within the telecommunications value chain. At the same time, the company is branching out of its traditional home, North Carolina, and is spreading its in-house activities on a global scale. This is especially true of the service-oriented portions of its activities, such as R&D and marketing, as well as the lower value-added activities that can be done more cheaply abroad.
Despite the global reach of the company, North Carolina has remained the hub of its activities. Greensborough houses the company headquarters, two wafer fabs, and a new test, tape, and reel facility. The engineering, design, and R&D activity is increasingly done offshore, however. With its large scientific potential, North Carolina has an important role to play in the years to come.
RFMD has raised its profile in the perennial controversy about public incentives. In 1999, it received a $2 million incentive package from Guilford County to keep its operations in Greensboro rather than to move to China.2 While for many this is a compensation for its enormous contributions to the community and creation of high-quality American jobs, critics find the episode to be typical of the problems with incentives. The precedents incentives set and the motivations they give to companies to blackmail their communities are a hotly debated issue, and will be examined in more detail in the public policy section.
RFMD initially started as a design bureau, and for the first seven years of its existence it was a classical "fables firm," contracting out all manufacturing and focusing on the design segment only. Expansion brought new design centers in California, Iowa, Massachusetts and Arkansas. By 2004 it had new design centers in Denmark, Canada, Russia and Belgium. RFMD entered wafer fabrication in 1998 with the opening of a facility in Greensboro. This is the most capital intensive and technologically sophisticated segment of the semiconductor value chain. A second facility opened in 2000 and the share of manufacturing done in-house jumped from 32% in 1999 to 65% a year later.3 Both chip testing and marketing have been gradually brought in-house, resulting in grater amounts of control for the company.
Flextronics4 is the world's largest contract electronics manufacturer, with $18.8 billion in sales and 116,000 employees in of 2006. In 1994, it had less than $250 million in sales and a workforce of 2,000. Founded and headquartered in Singapore, it has relied on global operations for its operations. Beginning in China and Malaysia, its global operations now includes facilities in 30 countries. It is vertically integrated, making it able design, manufacture, and sell products under the labels of others. Its product markets are diverse, ranging from hardware to telecommunication to network components, limiting its exposure to downturns in any one particular industry.
The United States, with its enormous market, has played an important role in corporate strategy, and the Americas provided 20% of Flextronics' revenues in 2006. It constructed one of its three US industrial campuses in Youngsville, Franklin County, bringing in approximately 1,900 well-paying jobs. Why this facility is located in North Carolina is critical to an understanding of NC's advantages in this industry.
Flextronics aims for global presence, both in terms of product markets and production locations. Western Europe and the United States contain Flextronics's most important business clients, and these clients often require customized work in the face of outsourcing activity within the wider industry. The availability of highly qualified personnel for advanced design and more customized production makes these locations ideal for production of advanced products. In the US, the North Carolina facility conducts design and manufacturing. As E. C. Sykes, manager of the Youngsville, NC plant said in an interview,5 the biggest customers of the plant are local start-ups in the Research Triangle Park. The proximity of big customers, including Nortel (with which Flextronics signed recently a $2.5 billion per year comprehensive supply management deal) and Lucent Technologies, helps the company.
Recent company restructuring has included massive consolidation of its manufacturing activities, closing of smaller factories, and movement of all processes to large manufacturing campuses. Key suppliers are also encouraged to locate in the vicinity, thus dramatically shortening the supply chain and lowering logistics costs. Industrial campuses are strategically dispersed to serve particular regions, although it is not surprising that the biggest facilities are in low-wage countries (Daoxin, China and Guadalajara, Mexico). The North Carolina industrial park under construction serves the needs of the East Coast.
Vertical integration along the entire value chain along with diversification across a variety of product markets have been the other two cornerstones of the company competitive strategy. These strategies have allowed Flextronics to market itself as a "one-stop solution" while simultaneously eliminating its dependence on any core market.
While Flextronics was originally responsible mostly for component manufacturing and assembly operations, it has expanded through growth and mergers to other sectors of the value chain. It bolstered its broad design expertise early on, and its acquisition of nCHIP and Astron in the early 1990s ensured its access to advanced proprietary technology. It has vertically integrated all stages of the manufacturing process, and its acquisition of a number of logistics and delivery companies has enhanced its distribution capabilities. Flextronics has also bought divested manufacturing facilities in exchange for committed supply orders. This strategy allows Flextronics to take control of all aspects of product manufacture for companies. For example, since 2002, Flextronics has managed Ericsson's entire supply chain.
The core market of Flextronics is telecommunication equipment. However, it has an established presence in a number of markets, including computing (11% of revenues), consumer digital (23%) and infrastructure (21%). Product flexibility insulated Flextronics from the severe downturn in IT which was so damaging to other major contract manufacturers, such as Solectron. Though the company laid off about 10,000 jobs worldwide (about a third of them in America), total revenues never declined.
Flextronics recently decided not to move its East Coast manufacturing center to Atlanta, despite the region's expertise in optics and a $20 million incentive package. North Carolina offered about $5.5 million in different incentives, including a $3 million worker-training program at the county's community college. This decision was a heartening sign that incentives are not entirely decisive. Flextronics banks much on the relative cost advantage of its labor force. By training former textile workers as technicians, it can afford to pay them relatively lower wages and maintain competitiveness in relation to lower-cost locations through higher-value design and production activities. This seems to be a major strategy for IT manufacturing firms moving into the state.
Red Hat, Inc.
Red Hat touts itself as the recognized leader in enterprise solutions and for good reason. In 2005, CIO Insight magazine conducted their annual "Vendor Value" survey with nearly 900 IT executives ranking their most important vendors on how well they delivered business value. For the second straight year, Red Hat was ranked first with 97% of customers wanting to continue to do business with them if given a choice. Much of this reputation is due to Red Hat's unique vision and leadership in the open source community.
Founded in 1993, Red Hat has become the most widely recognized provider of Linux to the global community. Sold through a subscription model, Red Hat offers a broad range of services from consulting to a global training program ensuring that as customers are delivered top-notch products, they are equally supplied with the necessary support infrastructure to take their business to the next level. Red Hat was born of the necessity to disseminate proper information to Linux and UNIX customers as with the 1995 acquisition of Marc Ewing's Red Hat Linux by then owner of the premier Linux and UNIX accessory and books distributor, Bob Young, Red Hat Software became the formal open source software firm that we see today.
In the late 1990s, offices expanded into both the UK and Japan, and with the acquisition of Cygnus, Red Hat has become the largest open source company in the world. The company now employs 2,000 workers worldwide, including offices in the Americas (Brazil, Canada, United States), Europe (France, Germany, Ireland, Italy, Spain, Sweden, United Kingdom), and the Asia/Pacific (Australia, China, Hong Kong, India, Japan, Korea, Malaysia, and Singapore).
In 2004, Red Hat opened a new location in Beijing, China, the company's first establishment in the country.6 This is an important step for Red Hat, as China has shown continued interest in open source software and is such a large potential market. The company forecasted that its China operations will be profitable within two years. Chief executive at Red Hat Matthew Szulik has said, "When we entered the Indian market five years ago, we took a similar approach. We worked very hard for the first 24 months. We are now the number-one Linux brand in India." Mr. Szulik pointed also to the encouraging fact that, "Few governments have been as outspoken and as visible as to the importance of open source software as the Chinese government".7 China seems it will be a key component of Red Hat's strategy in the years to come.
Red Hat's enterprise customers include: Amazon.com, AOL, Merrill Lynch, Credit Suisse First Boston, DreamWorks, Lithonia Lighting, VeriSign, Charles Schwab, Lehman Brothers, UBS Warburg, Morgan Stanley, and Goodyear. In addition, Red Hat has formed numerous partnerships, including those with IBM, Dell, HP, Oracle, Sun, Fujitsu, Intel, NEC, Hitachi, and BEA. A key partnership for Red Hat began in February of 1999 when IBM and Red Hat announced a "Linux Alliance." These inroads demonstrate the Technology Standards and Platforms segment of the Software Value Chain is, and why the chain is viewed as a Technology-driven commodity chain. The clients and partnerships not only represent commitments on the part of these companies, they represent voice in the formation of technology standards. They allow Red Hat and Linux to shape future developments in this segment of the industry.
Headquartered in Raleigh, Red Hat does much of its support and service work from this main base of operations. Dealing specifically with administrative, legal, accounting and sales issues, much of the actual engineering of the software is done outside of North Carolina, a bulk of which is being done at their Massachusetts facility. However, this is not to say that Red Hat does not have an impact on software development in North Carolina. In fact, Red Hat's strategic choice to locate its Raleigh facilities on the NC State University Centennial Campus was made in efforts to bridge the gap between the local North Carolinian community and the broader reaching international community of information technology.
Red Hat CEO Matthew Szulik is one of the largest proponents of building a North Carolina of world-class technological leadership and excellence in technology-driven education, molding Red Hat into a premier leader in the bridging of public and private Information Technology collaboration. Such work lead to the November 2001 creation of both the North Carolina Electronics and Information Technology Association (NCEITA) and their marketing brand "North Carolina: A State of Minds." The public-private partnership dubbed NCEITA, on which CEO Szulik is a board member, has become the centerpiece of a long-range plan to identity North Carolina as a global leader for knowledge-based technology industries and the most valuable asset in attracting more talent and business to the state8
Solectron9 is a leading global provider of electronics manufacturing and integrated supply chain services. They have over 44,500 employees, and they play an active role in designing, making, and servicing products that people around the world rely on every day. Solectron divides its services into three broad categories: product design and launch support, lean manufacturing and fulfillment, and post-manufacturing services, which each also include numerous sub-sectors. The corporation plays a dominant role in many markets and has clients that span a range of industries from the automotive and industrial industries, to communications and medical industries. Solectron operates in more than twenty countries.
Corporations in electronics and technology markets around the world are seeking to increase competitiveness by expanding their utilization of Electronic Manufacturing Service (EMS) companies. Faced with shorter product life cycles, more complex technology, and market pressures to reduce costs and product ramp time, the companies are turning to EMS providers for a broader range of electronics supply chain services. Outsourcing enables them to concentrate on their core competencies of product research and development, marketing and sales. Solectron provides these services.
Solectron hit its peak with $18 billion in sales in 2001. Since that time, Solectron's sales have been consistently decreasing, to $10.5 billion in 2006. This trend is mostly due to economic recession in the early part of this decade. Solectron is not insulated from the fall in demand its clients have experienced, and its position as the company these clients go to in order to outsource leaves it particularly vulnerable. To combat some of the negative effects of the economy's downturn, Solectron not only replaced its long term and first CEO in 2003, it began to reorganize both the size and the structure of the corporation. In the 2003 Annual Report, the company announced its plans at decreasing its employee count by 15%.10 In addition, Solectron plans to divest in assets not central to the company's primary goals.
Solectron is a key manufacturer in North Carolina's IT industry. Solectron operates two systems integration facilities (Charlotte and Creedmoor), a warehousing facility in Durham, and a repair facility in Morrisville. These are some of the largest facilities in the Western Hemisphere.11
For thirty years SAS Institute has maintained an impressive resume of global prowess in the field of business intelligence software, with 2005 marking their 29th consecutive year of revenue growth and profitability. Incorporated in 1976, SAS Institute is the world's largest privately held software company with 10,000 employees and over 400 global offices. SAS Institute was founded in Raleigh, North Carolina by CEO Jim Goodnight and fellow NC State colleagues, a group of enterprising young graduates looking to develop statistical analysis software to analyze agricultural research data. As the institute's developments in statistical analysis software have evolved, SAS, as it is now called, currently specializes in a diverse array of software and services for business intelligence.
While many of SAS's competitors provide business intelligence services allowing for deliverability reports to be generated from historical data, SAS prides itself on its ability to create software enabling its customers to gain vital strategy insight for the future. Working from their SAS Enterprise Intelligence platform, SAS integrates individual technology components within a client's existing IT infrastructure into a single unified system. From data integration and intelligence storage to analytics, the SAS platform extends the value of an existing system resulting in a much smoother, high performance experience.
2006 marks a milestone in SAS history as for the third consecutive year, SAS has been ranked one of the top five privately held companies headquartered in North Carolina (Cary) by the prestigious Grant Thornton NC 100sm. Just recently released, this awards program ranks firms based on annual revenues, due in part to work environments that foster employee satisfaction, creativity, innovation and dedication to customers. This year SAS shares the company of The International Group, Inc., WILCOHESS, National Gypsum Co. and Baker & Taylor in the top five brackets, ranking third among these various firms.
It is rather evident that SAS fully integrated into the North Carolinian economy given the sheer nature of its size and industrial dominance. In July of 2006, SAS opened a new regional office in Charlotte, specializing in financial services. Contributing to 39.5% of SAS' total revenue, the expansion of SAS' financial services operations into Charlotte was made possible in part due to long-term relationships with many of the leading financial services located in Charlotte including: Wachovia, AXA Financial, and HSBC. SAS' data integration, analytics, risk management, and regulatory compliance is used by almost 3,000 banks worldwide, including 96% of banks in the Fortune Global 500, many of whom have niches already established in Charlotte.
Nortel Networks12 is a leader in delivering communications capabilities. Nortel is present in 150 countries and offers many services, including broadband services, voice over IP, multimedia services, and wireless connections. Nortel celebrated its 100 year anniversary in 1995. That year, the company set as a goal the domination of the global market for public and private networks for communication, information, education, and commerce. Three years later, Nortel acquired Bay Networks, and the company "swiftly reengineered itself into an Internet powerhouse, offering complete solutions for multiprotocol, multiservice, global networking."
In 1999, Nortel Networks was first in terrestrial optical transport and has held this rank each year to date. In 2000, Nortel acquired another company, Alteon Web Systems, which provided content networking solutions for enterprises and services providers. In 2001, Sprint formed an agreement with Nortel to create a less costly voice network for it's customers. In the same year, Nortel was chosen by China Telecom, China Railcom, and China Unicom to build a new multiservice backbone network in China. A year later, Japan's largest telecom carriers awarded Nortel with a contract to expand its metro access network framework and Nortel began to build optical rings for major cities across Japan for a metro network. In 2002 and 2003, major nations in South America and India both contracted Nortel for major networking solutions.
Nortel has made expansive moves to increase its share in the emerging world market of telecom networks. China, Japan, Brazil, and India are all markets that were previously untapped, and only through acquisitions of other leading telecom companies, and a reengineering of the major goals of the company toward a more Internet oriented global networking provider, Nortel has been successful in gaining this footing abroad.
Nortel has one of its major corporate headquarters in the RTP employing over 2,800 people in Research Triangle Park, which makes Nortel one of the largest private-sector employer in the Raleigh-Durham area.15 Nortel also provides support to the local community and local workforce investment. Nortel Networks Foundation has continuously been a source of scholarship money to NC State University to fund technology studies and research. Over 1,000 graduates, co-ops, and interns from NC State have been hired by Nortel.
IBM has been one of the largest companies and most influential players in the information technology industry since the middle of the twentieth century. However, while the company's profitability and success dates back several decades, the firm's flexibility has ultimately been what has continued the company's momentum. In the early stages of computer development during the 1970s, IBM's value chain structure, like those of many of the other big players in the computer industry, was highly integrated. Over time, the firm's strategy shifted to one that outsourced stages of production processes to outside companies.16
In the 1970s and 1980s, IBM provided most of the key elements of its own computer systems, from the operating system and relevant software to the peripherals. While other big companies practiced a similar strategy, IBM was able to capture a significant market share during that era, as the company was almost able to hold existing customers "hostage" on account of the incompatibility with non-IBM products and services. Apple Computer's introduction of the first personal computer in the late 1970s served as the final trigger for internal structural change for IBM. While Apple was first to introduce the concept of the personal computer, IBM's pursuit of the initiative, production with implicit outsourcing to companies like Intel and Microsoft, was ultimately what spurred the shift toward modular architectures in the greater IT industry.17
IBM's division IBM Global Services is the global leader in IT Services. IBM took a radical stance on their business strategy in the 1990s - they decided that transitioning away from a traditional brick and mortar corporation to a service-oriented one would prove more profitable. In the past five years, they have successfully changed their business model and IT Services accounts for the majority of their revenues.
Given its sales of more than $91 billion and its 366,345 employees worldwide, IBM is a large corporation on any industry's scale. They have largely attributed their success on IT Services to On Demand Business: "An enterprise whose business processes -integrated end to end across the company and with key partners, suppliers and customers - can respond with speed to any customer demand."18 Supplying to specific needs for specific clients has allowed IBM to reach any industry at any time around the world. They have promoted the use of a modular business model, where the locations they work at are primarily local to the corporation seeking their services. In certain cases IBM will have components of their product developed elsewhere, but they wish to be in the same region as their clients.
IBM Global Services has a central location in Charlotte, NC. The recovery sites will help corporations find the computer systems, peripherals, network connectivity and communications equipment necessary to help business recover as quickly as possible. IBM personnel are on hand to create a plan to successfully recover corporate information. In addition IBM has centers located in Research Triangle Park (RTP) to focus on products and solutions offered by IBM Systems & Technology Group in correlation with Lenovo.
IBM Global Services has been active in North Carolina. They have helped develop solutions for the University of North Carolina Health Care Systems, West North Carolina Health Network, Blue Cross Blue Shield, and others.
- RF Micro Devices, Various Annual Reports. Last accessed July 27, 2007. [http://www.rfmd.com]
- "Corporate Incentives Mixed Track at Best," Greensboro News & Record, August 24, 2003. See also David Nivens, "Dell incentives offer will be the most lucrative ever in Guilford, N.C." High Point Enterprise, November 26, 2004.
- RF Micro Devices, Fiscal Year 2000 Annual Report. Website. Last accessed April 1, 2005. [http://media.corporate-ir.net/media_files/nsd/rfmd/reports/ar00.pdf%20]
- Flextronic Annual Reports. Last accessed July 27, 2007. [http://www.flextronics.com/Investors/annualReportSEC.asp]
- Dan Egbert, "Startups are key to plant's success," The News and Observer (Raleigh), April 24, 2002.
- "Red Hat opens Beijing offices." Computer Business Review, November 16, 2004. Last accessed April 1, 2005. [http://www.cbronline.com/article_news.asp?guid=626EC01C-9F30-4E43-A3E9-069BD10BE8EE]
- "Red Hat targets China for Linux." NEWS.com.au (Sydney, Australia), November 15, 2004.
- North Carolina Department of Commerce, "Profiles of Industry." Last accessed Augsut 11, 2007.
- Solectron, Various Annual Reports. Last accessed July 27, 2007; Solectron, Solectron Corporate Website, Various pages. Last accessed August 9, 2007. [http://www.solectron.com]
- Solectron, 2003 Annual Report. Last accessed April 1, 2005.
- Nortel, Various Annual Reports. Last accessed July 27, 2007; Nortel, Nortel Corporate Website, Various pages. Last accessed August 9, 2007. [http://www.nortel.com]
- Jack Lyne, "North Carolina Gets Final Dell Decision on 1,500-Worker PC Plant," Site Selection (Norcross, GA), November 8, 2004. [http://www.siteselection.com/ssinsider/pwatch/pw041108.htm]
- Patrick Hogan, "Judge dismisses Dell incentives case," Triangle Business Journal (Raleigh), May 12, 2006. Last accessed August 11, 2007. [http://www.locationmgmt.com/assets/docs/Judge_Dismisses_Dell_Incentives_Case.pdf]
- Research Triangle Foundation, "Facts and Figures: Largest Employers." Website. Last accessed August 11, 2007. [http://www.rtp.org/index.cfm?fuseaction=page&filename=facts_and_figures_largest_employers.html]
- Charles H. Fine, Clockspeed. New York: Basic Books, 1998. p.45.
- Fine (fn. 15).
- International Business Machines (IBM), "University of Pittsburgh Medical Center partners with IBM to make tomorrow's patient care a reality," Press Release, 2005. Last accessed August 11, 2007. [http://www-935.ibm.com/services/us/bcs/pdf/upmcfinal12-19.pdf]