Vertical integration back in fashion: re-aggregation again

I was on a board meeting of Tuscany this morning and Trevor Loy, the board-member representing Flywheel Ventures painted an interesting view of what Wall Streets received wisdom is about what is going to happen in technology in general.

The basic transition is that we are going towards very large technology companies that operate on global scale to supply other large organizations with as much as they can, as opposed to the recent decades when we have had specialized companies (Microsoft for operating system, Dell for hardware, Oracle for database  etc). They will be much more vertically integrated. For example, Oracle bought Sun and has said they are looking at semiconductor companies. They want to supply not just databases but the entire computing environment to their customers.

Here’s an interesting statistic: the largest 12 technology companies are sitting on so much cash that they could buy all of the other publicly traded technology companies. Their stock prices reflect this power: they have been rising much faster than the smaller technology companies, which have languished. The giants are truly giant: Apple has a market cap of nearly $300B as I talked about recently and over $40B of that is in cash.

Any company not doing billions in business and operating on a global scale is in play and a target for acquisition. Note that in EDA, although they do operate globally, none of the “big” EDA companies is really big by this standard and so they are all in play. Synopsys has a market cap of about $4B. ARM has a market cap of $8B. There have been some rumors that Apple might buy ARM. I’m not sure that would make much sense, but they would barely notice the dent in their bank balance.

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