Buyers seek stability in big tech firms

By Michelle Kessler
USA Today

SAN FRANCISCO — The economic downturn is boosting some big tech companies as more customers play it safe with limited tech budgets.

Like smaller rivals, big players have been hurt by the poor economy. But some — including Cisco Systems, Dell Computer and Intel — are racking up gains in market share.

Downturns "favor the big guys," says Gartner analyst John Enck, because tech buyers in tough times are often less willing to take a chance. Instead of trying an innovative product or supplier, many are more likely to stick with a proven product and financially stable company, says Michael Kirven, who runs tech-consulting firm Blue Wolf Group. Lately, he often advises clients to stick with big brand names.

The trend could eventually lead to higher prices and less innovation, tech analysts say. No. 2 PC processor maker Advanced Micro Devices has pushed No. 1 Intel to lower prices more and get newer chips to market faster. Likewise, upstarts such as Juniper Networks stepped up heat on leader Cisco.

Microsoft, meanwhile, has 92 percent of the PC operating system market. Five years ago, Windows and related programs made up about 5 percent of the cost of a PC, says IDC analyst Roger Kay. Now — in part because the cost of other components has fallen — it can be as high as 15 percent, Kay says. Microsoft says new features justify new prices.

The strong are stronger in:

• PCs. Dell, the No. 1 PC maker in the United States, saw its U.S. market share in the last quarter grow to about 27 percent from 24 percent a year ago, says research firms Gartner and IDC. Much of that was grabbed from No. 4 Gateway. Its share fell to about 6 percent from 8 percent a year earlier.
• Communications gear. Cisco had almost 15 percent of the worldwide communications equipment market in the most recent quarter. That's up from 10 percent in the same period a year ago, says Synergy Research Group. Rivals such as Juniper, Ciena and Nortel Networks lost share during that time. In Ethernet switches alone, Cisco's market share rose to 69 percent from 61 percent, says researcher Dell'Oro Group.
• PC processors. In the second quarter, Intel nabbed 92 percent of the market share for PC processors — up from 88 percent in the same period a year earlier, IDC says. During the same time, AMD's share fell to 8 percent from 11 percent.

Size alone doesn't ensure gains in market share. Many factors play a role in how competitive a company is. But the strong are likely to get stronger until the economy picks up, says IDC's Kay. Most vulnerable are small companies that sell expensive business products.

Smaller companies are doing everything they can to reassure customers they are a safe bet, even during a downturn. Juniper, for example, is partnering with larger firms such as Siemens and Alcatel.